Chempace Corporation
In re Chempace Corporation (EAB FIFRA Appeal Nos. 99-2 and 99-3): liability affirmed and penalty upheld
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Plain-English summary
Chempace Corporation appealed an EPA Region V enforcement action alleging 99 FIFRA violations at its Toledo, Ohio facility. The Board affirmed liability for 98 violations involving sales or distributions of unregistered or misbranded pesticides and upheld the Presiding Officer's consideration of ability to pay, penalty guidelines, culpability, and other gravity factors. The Board also rejected the Region's request to increase the penalty to $200,000. It affirmed the Initial Decision in its entirety and assessed a civil penalty, but the release contains an internal amount discrepancy: the syllabus and earlier text state $92,123, while the conclusion states $92,193. The decision orders payment within 30 days after filing.
Decision snapshot
- Cited authorities: 7 U.S.C. §§ 136e, 136j, 136l, and 136u; 40 C.F.R. §§ 19.1, 22.19, 22.27, and 22.30
- Outcome: The Initial Decision and assessed civil penalty were affirmed in their entirety. The official release states conflicting penalty amounts of $92,123 and $92,193.
- Key point: Each sale or distribution of an unregistered or misbranded pesticide was treated as a separate FIFRA violation, and the penalty decision was upheld.
Full text (EPA EAB public release)
CHEMPACE CORPORATION 119
IN RE CHEMPACE CORPORATION
FIFRA Appeal Nos. 99-2 & 99-3
FINAL DECISION
Decided May 18, 2000
Syllabus
This matter concerns appeals from the Initial Decision of Administrative Law Judge
Andrew S. Pearlstein (“Presiding Officer”) arising out of an administrative enforcement
action by the U.S. Environmental Protection Agency Region V (the “Region”) against
Chempace Corporation (“Chempace”) for 99 alleged violations of the Federal Insecticide,
Fungicide, and Rodenticide Act, as amended (“FIFRA”), 7 U.S.C. §§ 136-136y. Prior to
1989, Chempace maintained registrations for several pesticides under FIFRA. In particular,
Chempace held registrations for the pesticides, Trigger, Uni-Rooter, GLY, Uni-Quat 14,
Complete, and Eradicate. In January 1989, Chempace let its registrations for Trigger and
Uni-Rooter lapse. On October 10, 1989, the Region issued a cancellation order that can-
celed the registration for these two pesticides and prohibited Chempace from selling or
distributing existing supplies after March 1, 1990. The Region issued a similar cancellation
order regarding Chempace’s production of the pesticide, GLY, on December 18, 1990. On
March 13, 1992, the Region canceled Chempace’s pesticide producing establishment num-
ber, 10155-OH-1, as part of a Consent Order resolving a prior administrative enforcement
proceeding.
On May 4 and May 9, 1994, inspectors employed by the Ohio Department of Agri-
culture conducted inspections of Chempace’s Toledo, Ohio facility. The inspections re-
sulted in the Region’s enforcement action which charged Chempace with: 55 violations of
FIFRA section 12(a)(1)(A), 7 U.S.C. § 136j(a)(1)(A), for the distribution and sale of the
unregistered pesticides Trigger, Uni-Rooter, and GLY; 43 violations of FIFRA section
12(a)(1)(E), 7 U.S.C. § 136j(a)(1)(e), for the distribution and sale of the misbranded pesti-
cides Uni-Quat 14, Complete, and Eradicate; and one violation of FIFRA section 7(a),
7 U.S.C. § 136e(a), for producing pesticides at an unregistered facility between March 14,
1992, and the time of the inspections in May 1994. On March 24, 1999, the Presiding
Officer issued an Initial Decision finding that Chempace had violated FIFRA as alleged,
and imposed a civil penalty of $92,123.
Both the Region and Chempace appeal from the Presiding Officer’s Initial Decision.
The Region asserts that the Presiding Officer committed error in concluding that Chempace
met its burden of production regarding its inability to pay the Region’s proposed penalty of
$200,000. The Region argues that the Presiding Officer’s conclusion contravenes the
Board’s precedent in In re New Waterbury, Ltd., 5 E.A.D. 529 (EAB 1994). Chempace
appeals the Initial Decision in six respects: 1) the Presiding Officer erred in basing a deter-
mination of the number of violations on discrete sales or distributions of pesticides; 2) the
Presiding Officer erred by placing the evidentiary burden on Chempace to prove what
amount of penalty it could pay; 3) the Presiding Officer erred in utilizing a four percent of
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120 ENVIRONMENTAL ADMINISTRATIVE DECISIONS
gross revenue guideline to assess the penalty; 4) the Presiding Officer erred in ruling that
Chempace’s most recent financial data should be used to calculate the penalty imposed; 5)
the Presiding Officer erred by overestimating Chempace’s culpability; and 6) the Presiding
Officer erred by failing to consider other gravity adjustments as required by the Enforce-
ment Response Policy for FIFRA (July 2, 1990) (“ERP”).
Held: The Presiding Officer did not err in finding Chempace liable for 98 violations
of FIFRA section 12(a)(1)(A) and (E). Under sections 12(a)(1)(A) and (E) , the “unit of
violation” is the sale or distribution. Each such sale or distribution of a pesticide to any
person constitutes a distinct unit of violation, and thus is grounds for the assessment of a
separate penalty. In this case, the Region alleged 55 separate sales or distributions of unre-
gistered pesticides, as well as 43 separate sales or distributions of misbranded pesticides,
and Chempace did not raise any genuine issues of material fact to refute that such sales or
distributions occurred.
Relative to the Region’s appeal, the Presiding Officer did not abuse his discretion in
denying the Region’s motion for additional discovery within the context of determining the
appropriate penalty. Considerable deference is afforded a Presiding Officer’s discovery rul-
ing, particularly where the issue involved is the amount of the penalty — an issue for
which the Presiding Officer has broad discretion. Although the Presiding Officer did not
explicitly recite the factors under 40 C.F.R. § 22.19(f)(1) in denying the Region’s request
for other discovery, this shortcoming does not constitute an abuse of discretion by the Pre-
siding Officer in denying additional discovery in the context of this case.
The record demonstrates no clear error in the Presiding Officer’s conclusion that
Chempace carried its burden of production in refuting the Region’s prima facie showing of
the ability to pay the full proposed $200,000 penalty. In the absence of a vigorous cross-
examination by the Region of Chempace’s expert witness showing the alleged deficiencies
in that witness’ analysis and the lack of support for the witness’ conclusions, the Presiding
Officer did not veer from the Board’s instructions in New Waterbury, or fail to properly
evaluate the preponderance of the evidence.
However, while Chempace successfully refuted the assertion that it could pay the
full $200,000 proposed penalty, it did not convince the Presiding Officer that it could not
pay any penalty. At that point, the Presiding Officer did not impermissibly place a burden
on Chempace as Chempace asserts, but rather appropriately exercised his authority under
the Consolidated Rules of Practice to consider the record, the statutory penalty criteria, and
the applicable penalty policy, to determine an appropriate penalty.
The Presiding Officer did not commit clear error in applying the statutory ability-to-
pay factor. The Presiding Officer properly considered the four percent of average gross
income guideline from the ERP in crafting an appropriate penalty and properly used
Chempace’s most recent financial data in making that calculation.
The Presiding Officer did not commit error in relying on evidence of a prior viola-
tion and evidence that Chempace officers failed to train or instruct their employees to sup-
port the gravity adjustment scores proposed by the Region in its penalty calculation. Nor
did the Presiding Officer commit error in declining to deviate from the ERP on the bases
Chempace asserts. Thus, the Presiding Officer’s imposition of a $92,123 penalty is af-
firmed in its entirety.
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CHEMPACE CORPORATION 121
Before Environmental Appeals Judges Scott C. Fulton, Ronald L.
McCallum and Edward E. Reich.
Opinion of the Board by Judge Reich:
This matter concerns appeals from the Initial Decision of Administrative
Law Judge Andrew S. Pearlstein (“Presiding Officer”) arising out of an adminis-
trative enforcement action by the U.S. Environmental Protection Agency Region
V (the “Region”) against Chempace Corporation (“Chempace”) for 99 alleged vio-
lations of the Federal Insecticide, Fungicide, and Rodenticide Act, as amended
(“FIFRA”), 7 U.S.C. §§ 136-136y. On March 24, 1999, the Presiding Officer is-
sued an Initial Decision1 finding that Chempace had violated FIFRA as alleged,
and imposed a civil penalty of $92,123. Both the Region and Chempace appeal
from the Presiding Officer’s Initial Decision.
The Region asserts that the Presiding Officer committed error in concluding
that Chempace met its burden of production regarding its inability to pay the Re-
gion’s proposed penalty of $200,000. The Region argues that the Presiding Of-
ficer’s conclusion contravenes the Board’s precedent in In re New Waterbury,
Ltd., 5 E.A.D. 529 (EAB 1994). The Region seeks the imposition of the full
$200,000 penalty proposed in its complaint.2
Chempace appeals the Initial Decision in six respects: 1) the Presiding Of-
ficer erred in basing a determination of the number of violations on discrete sales
or distributions of pesticides; 2) the Presiding Officer erred by placing the eviden-
tiary burden on Chempace to prove what amount of penalty it could pay, once the
Region had failed to carry its burden with respect to Chempace’s ability to pay the
full penalty proposed in the complaint; 3) the Presiding Officer erred in utilizing a
four percent of gross revenue guideline to assess the penalty because he lacked
sufficient evidence to do so; 4) the Presiding Officer erred in ruling that
Chempace’s most recent financial data should be used to calculate the penalty
imposed; 5) the Presiding Officer erred by overestimating Chempace’s culpabil-
ity; and 6) the Presiding Officer erred by failing to consider other gravity adjust-
ments as required by the Enforcement Response Policy for FIFRA (July 2, 1990)
1 The Initial Decision incorporates the Presiding Officer’s findings of liability in an October
15, 1997, partial accelerated decision entitled, “Order Granting Partial Accelerated Decision and Al-
lowing Amended Answer” (“PAD”). See Initial Decision at 13. Chempace’s appeal with respect to
liability is also an appeal from the PAD. For ease of reference, we characterize all appeals here as
appeals from the Initial Decision.
2 The Region had calculated a proposed penalty of $495,000 (99 violations at $5,000 per viola-
tion), but reduced it to $200,000 based on its assessment of Chempace’s ability to pay a penalty. See
Initial Decision at 14; PAD at 11.
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122 ENVIRONMENTAL ADMINISTRATIVE DECISIONS
(“ERP”). For the reasons discussed below, we affirm the Presiding Officer’s Initial
Decision and the penalty imposed.
I. BACKGROUND
A. Factual Background
Chempace is currently a producer and distributor of maintenance chemicals
such as cleaners, degreasers, and deodorizers. Initially, Chempace sold and dis-
tributed regulated pesticides and herbicides. However, that portion of the business
declined as Chempace increased its sales of maintenance chemical and portable
toilet deodorizers. Chempace operates from a facility it owns in Toledo, Ohio,
consisting of a warehouse and offices.
Chempace’s current President, Ralph Wooddell, began working for
Chempace in 1969 as an office clerk. Mr. Wooddell became President of
Chempace in 1979 after holding several positions in the company. Robert Shall is
Chempace’s Chairman of the Board. Mr. Shall created Chempace in its current
form when he merged another chemical company with Chempace in 1983. At that
time, Mr. Shall owned 45% of the company, his partner Jack Y. Stone owned
45%, and Mr. Wooddell owned 10% of Chempace. In 1987, Chempace and Mr.
Stone executed an agreement whereby Chempace bought out Mr. Stone for his
share of stock, a covenant not to compete, a consulting contract, and a retirement
benefit (total value of $180,000). Mr. Shall currently owns 81.8% of the company
and Mr. Wooddell owns 18.2%.
Mr. Wooddell is the chief supervisor of day-to-day business activities. He
also has spent time on the road selling products for the company. Mr. Shall, on the
other hand, has been less involved in Chempace’s day-to-day business. Rather,
Mr. Shall oversees strategic planning, and spends much of his time outside of the
facility focusing on maintaining and expanding the company’s customer base. Mr.
Shall is responsible for Chempace’s transformation from a company that primarily
sold janitorial supplies, as well as pesticides and herbicides, to commercial and
government customers in the 1980s, to a company that sells portable toilet de-
odorizers throughout the world and supplies maintenance chemicals to Ford Mo-
tor Company and federal government facilities in the region. In April 1998,
Chempace employed 13 persons, including three telemarketers, three salesmen
(including Mr. Shall), four warehousemen, two office workers, and Mr.
Wooddell.
Chempace’s pesticides production, sales and distribution activity is the core
of the violations of FIFRA that the Presiding Officer found Chempace had com-
mitted. Prior to 1989, Chempace maintained registrations for several pesticides
under FIFRA. In particular, Chempace held registrations for the pesticides, Trig-
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CHEMPACE CORPORATION 123
ger, Uni-Rooter, GLY, Uni-Quat 14, Complete, and Eradicate. In January 1989,
Chempace let its registrations for Trigger and Uni-Rooter lapse. On October 10,
1989, the Region issued a cancellation order that canceled the registration for
these two pesticides and prohibited Chempace from selling or distributing existing
supplies after March 1, 1990. The Region issued a similar cancellation order re-
garding Chempace’s production of the pesticide, GLY, on December 18, 1990. On
March 13, 1992, the Region canceled Chempace’s pesticide producing establish-
ment number, 10155-OH-1, as part of a Consent Order resolving a prior adminis-
trative enforcement proceeding in 1991.3
On May 4 and May 9, 1994, inspectors employed by the Ohio Department
of Agriculture4 conducted inspections of Chempace’s Toledo, Ohio facility. The
inspections resulted in the Region’s enforcement action in this case.
B. Procedural Background
The Region’s Complaint, filed against Chempace on September 26, 1996,
sought a civil penalty of $200,000. The Complaint alleged 55 violations of FIFRA
section 12(a)(1)(A), 7 U.S.C. § 136j(a)(1)(A), for the distribution and sale of the
unregistered pesticides Trigger, Uni-Rooter, and GLY.5 The Complaint also al-
leged 43 violations of FIFRA section 12(a)(1)(E), 7 U.S.C. § 136j(a)(1)(e), for
the distribution and sale of the misbranded pesticides Uni-Quat 14, Complete, and
3
On September 30, 1991, the Region charged Chempace with a violation of section 7(c)(1) of
FIFRA, 7 U.S.C. § 136(e)(c)(1), for failing to file an annual pesticide production report for the 1990
calendar year. See Respondent’s Appeal Brief (“Chempace Br.”) at 6. Chempace and the Region settled
the matter in a Consent Order whereby Chempace’s producer establishment number was canceled, and
Chempace paid a civil penalty of $500. Id. at 7.
4 The U.S. Environmental Protection Agency has authority under FIFRA section 23(a)(1),
7 U.S.C. § 136u(a)(1), to enter into cooperative agreements with states for FIFRA enforcement pur-
poses. The Region has entered into such an agreement with the Ohio Department of Agriculture
(“ODA”) duly authorizing qualified ODA personnel to conduct inspections under FIFRA, pursuant to,
and for the purposes set forth at, sections 8 and 9 of FIFRA, 7 U.S.C. §§ 136f and 136g.
5
Counts I-XXVI of the Complaint involve the sales or distributions of Trigger; Counts
XXVII-XXIX involve the sales or distributions of Uni-Rooter; and Counts XXX-LV involve the sales
or distributions of GLY.
FIFRA section 12(a)(1)(A) makes it unlawful to distribute or sell:
any pesticide that is not registered under section 136a of this title or whose registration
has been canceled or suspended, except to the extent that distribution or sale otherwise
has been authorized by the Administrator under this subchapter.
7 U.S.C 136j(a)(1)(A).
In relation to the sales or distributions of Trigger and Uni-Rooter, the Region also charged
Chempace with violating a cancellation order under FIFRA section 12(a)(2)(K),
7 U.S.C. § 136j(a)(2)(K).
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124 ENVIRONMENTAL ADMINISTRATIVE DECISIONS
Eradicate.6 The Complaint alleged one violation of FIFRA section 7(a),
7 U.S.C. § 136e(a), for producing the pesticides Trigger, Uni-Rooter, GLY, Uni-
Quat 14, Complete, and Eradicate at an unregistered facility between March 14,
1992, and the time of the inspections in May 1994.7
By letter dated October 8, 1996, Chempace sought to informally settle the
complaint with the Region. Chempace filed an Answer to the Complaint on Octo-
ber 18, 1996, pleading “no contest” to most of the material allegations.8 On De-
cember 13, 1996, Acting Chief Administrative Law Judge, Spencer T. Nissen,
ordered the initiation of alternative dispute resolution (“ADR”) upon the consent
of the parties. On April 22, 1997, at the Region’s request, the ADR process was
terminated by order of Judge Nissen, and the Presiding Officer was designated to
preside over these proceedings.
The Presiding Officer issued a prehearing order on May 6, 1997, ordering
among other things that Respondent “furnish supporting documentation such as
financial statements or tax returns” if it intended to claim inability to pay the pro-
posed penalty. Prehearing Order, at 1 (ALJ, May 6, 1997). On June 6, 1997, the
Region moved for Partial Accelerated Decision on liability for the 99 counts in
the complaint. On July 23, 1997, Chempace sought to amend its answer and
moved to oppose the Region’s request for partial accelerated decision.
Chempace’s proposed Amended Answer either denied, or denied knowledge of,
the material allegations in the Complaint, and raised several affirmative defenses.
It also challenged the propriety of the penalty calculation. The Region opposed
the motion to amend on August 5, 1997. Memorandum in Opposition to
[Chempace’s] Motion for Leave to Amend Answer (Aug. 5, 1997). The parties
6 Counts LVI-LXX of the Complaint involve the sales or distributions of the misbranded pesti-
cide Uni-Quat 14; Counts LXXI-XC involve the sales or distributions of the misbranded pesticide
Complete; and Counts XCI-XCVIII involve the sales or distributions of the misbranded pesticide
Eradicate.
FIFRA section 12(a)(1)(E) makes it unlawful to distribute or sell “any pesticide that is adulter-
ated or misbranded.” 7 U.S.C. § 136j(a)(1)(E). A pesticide is misbranded if, among other things:
its label does not bear the registration number assigned under section 136e of this title
to each establishment in which it was produced * * *.
7 U.S.C. § 136(q)(1)(D).
7 FIFRA section 7(a) provides in pertinent part:
No person shall produce any pesticide subject to this subchapter * * * in any State
unless the establishment in which it is produced is registered with the Administrator.
7 U.S.C. § 136e(a).
8 Chempace’s Answer was incorrectly dated November 17, 1996, although the Regional Hear-
ing Clerk’s date stamp indicates receipt on October 18, 1996, and Chempace’s cover letter and certifi-
cate of service were dated October 17, 1996.
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CHEMPACE CORPORATION 125
filed their prehearing exchanges on July 18, 1997 (Region’s filing) and August 5,
1997 (Chempace’s filing).
In an order dated October 15, 1997, the Presiding Officer ruled on
Chempace’s motions and the Region’s request for partial accelerated decision as
to liability. The Presiding Officer granted Chempace’s motion to amend its an-
swer. Order Granting Partial Accelerated Decision and Allowing an Amended
Answer, at 2-3 (ALJ, Oct. 15, 1997). The Presiding Officer also found Chempace
liable for the 99 violations of FIFRA alleged in the complaint. Id. at 12. The Pre-
siding Officer also specifically identified Chempace’s ability to pay the proposed
civil penalty as the primary issue to be addressed at the evidentiary hearing. Id.
On October 22, 1997, Chempace sought reconsideration of the Presiding
Officer’s liability determination with respect to counts XXX — LV (sales or dis-
tribution of the pesticide GLY). The Region filed a motion opposing reconsidera-
tion on November 5, 1997. The Presiding Officer denied reconsideration on No-
vember 17, 1997.
On December 10, 1997, the Region moved to compel Chempace’s comple-
tion of its prehearing exchange and sought further discovery from Chempace. See
Motion to Compel Completion of Prehearing Exchange and for Further Discov-
ery9 (Dec. 10, 1997) (“Other Discovery Motion”). In particular, the Region sought
general and specific financial information about Chempace to permit its expert
witness, Ms. Charlotte M. Resseguie, C.P.A., to fully review Chempace’s ability
to pay a civil penalty.10 Chempace filed its opposition to the Region’s Other Dis-
9 The Region’s motion for “Further Discovery” was based on 40 C.F.R. § 22.19(f), which pro-
vides for “other discovery” after the prehearing exchange required by 40 C.F.R. § 22.19(b). The rules
governing these proceedings were amended on July 23, 1999. See 64 Fed. Reg. 40,138 (July 23, 1999).
Any references to these rules in this opinion are to the pre-amendment rules, unless otherwise
specified.
10
Ms. Resseguie stated:
In order to conduct a thorough analysis of CHEMPACE’s ability to pay a civil penalty
for the violations committed in this case, I must analyze true and correct information
concerning, at a minimum, the following financial factors:
a. Current and anticipated cash flow generated by CHEMPACE over a given period of
time;
b. The profits accrued by CHEMPACE over a given period of time and CHEMPACE’s
current net worth;
c. The net sales or income generated by CHEMPACE over a given period of time;
d. The value of cash and other liquid assets held by CHEMPACE;
e. CHEMPACE’s ability to obtain new loans;
f. Any unnecessary assets that could be liquidated;
g. Any extraordinary or unnecessary expenses that could be reduced or eliminated.
Continued
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126 ENVIRONMENTAL ADMINISTRATIVE DECISIONS
covery Motion on December 29, 1997. On January 12, 1998, the Presiding Officer
issued an order on a number of motions, including the Region’s Other Discovery
Motion, ruling that the Region’s request to compel completion of the prehearing
exchange was “largely moot or insubstantial” since Chempace stated it would sup-
ply missing documents and would stipulate to the accuracy of its financial
records. Order on Discovery, at 1 (ALJ, Jan. 12, 1998). With respect to the re-
quest for further discovery of Chempace’s detailed financial information, the Pre-
siding Officer set a deadline of January 27, 1998, for Chempace to respond, and
only provided “guidelines” for such discovery, but did not rule on that portion of
the Region’s motion. Id. First, he stated an expectation that the parties would co-
operate in the discovery process. Second, he questioned the need for the Region to
“pursue this type of detailed analysis of [Chempace’s] finances * * *. The risk of
failing to disclose or present evidence that would support [Chempace’s] claim of
inability to pay falls primarily on [Chempace].” Id. at 2 (relying on the Board’s
decision in In re New Waterbury, Ltd., 5 E.A.D. 529, 541 (EAB 1994)). Finally,
the Presiding Officer noted that the ERP provided “another method for estimating
a respondent’s ability to pay — calculating four percent of a company’s (and affil-
iated corporate entities’) gross sales.” Id. The Presiding Officer then suggested
that this latter guideline be used as a “starting point for settlement negotiations.”
Id.
On February 11, 1998, Chempace filed a Motion for Accelerated Decision
seeking to reduce the number of counts in the complaint from 99 to 7, arguing that
the relevant statutory provisions were not intended to penalize each individual
sale or distribution of an unregistered or misbranded pesticide. The Presiding Of-
ficer denied Chempace’s motion on February 19, 1998, finding that the motion
was untimely. See Order Denying Motion for Accelerated Decision, Denying
Postponement of Hearing and Granting an Extension for Supplemental Prehearing
Exchange (ALJ, Feb. 19, 1998). Two weeks later, on February 26, 1998,
Chempace filed its supplemental response to the Region’s Other Discovery Mo-
tion. Chempace requested that the Presiding Officer deny the Region’s discovery
request, arguing that this Board’s decision in New Waterbury “provided very clear
guidelines regarding the scope of discovery,” and that the Region wanted to con-
duct “the ‘trial of the century’” with its analysis of Chempace’s financial status.
Chempace’s Supplemental Response to Complainant’s Motion for Further Discov-
ery, at 1-2 (Feb. 26, 1998).
On February 27, 1998, the Presiding Officer issued an order entitled, “Order
Denying Motions,” that ruled on a number of prehearing motions filed by the par-
ties. With respect to the Region’s Other Discovery Motion, the Presiding Officer
(continued)
Affidavit of Charlotte A. Resseguie, C.P.A., at 3 (Dec. 8, 1997).
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CHEMPACE CORPORATION 127
denied the Region’s request for further discovery. See Order Denying Motions at
-
The Presiding Officer reasoned:
[Chempace] has already produced five years’ tax returns and financial
statements. [The Region’s] latest prehearing exchange includes an
analysis of [Chempace’s] ability to pay by [the Region’s] financial ex-
pert. If the additional undisclosed documents are shown at the hearing
to be relevant to the penalty assessment, adverse inferences could be
drawn against the [Chempace’s] position.
Id.
The Presiding Officer then held an evidentiary hearing on April 7 and 8,
-
Each party presented three witnesses. The Region presented Mr. Matthew
Hofelich, Ms. Dea Zimmerman, and Ms. Charlotte Resseguie. Chempace
presented Mr. Robert Shall, Mr. Ralph Wooddell, and Mr. Richard Bernstein. The
record of the hearing consists of a stenographic transcript of 571 pages, and 29
exhibits received into evidence. The Presiding Officer then issued his Initial Deci-
sion, ruling that Chempace had violated FIFRA as alleged in the Region’s com-
plaint, and imposing a civil penalty of $92,193. The Region and Chempace now
appeal the Initial Decision.II. DISCUSSIONWe now turn to the issues presented on appeal. For efficiency, we address
the issue of the number of violations first. Since, as explained below, we affirm
the Presiding Officer’s decision regarding the number of violations, we then turn
to the penalty calculation issues raised by the Region and Chempace.
A. The Number of Violations Assessed Under FIFRA Section 12(a)(1)(A)
and (E)
Chempace argues on appeal that the “Presiding Officer erred in determining
[that] the number of counts the Agency can charge for violations of FIFRA
§§ 12(a)(1)(A) and (E) is a matter of Agency discretion.” Chempace Br. at 13.
Rather, Chempace asserts, “the number of counts which may be charged under
these provisions is a matter of statutory interpretation.” Id. The Region argues that
Chempace is barred from raising this issue now because Chempace failed to put
on any evidence or cross-examine the Region’s witness regarding the Agency’s
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128 ENVIRONMENTAL ADMINISTRATIVE DECISIONS
discretion to charge Chempace with 99 counts.11 Region’s Reply Brief (“Region’s
Reply”) at 8-9. In the alternative, the Region argues that there is no error where
the ERP “permits charging a respondent with a separate violation of FIFRA for
each separate act of sale or distribution of an unregistered or misbranded pesti-
cide.” In such cases, the Presiding Officer must consider the ERP, and the Board
has upheld the use of the ERP for “independently assessable charges in a FIFRA
context.” Id. at 10.
We generally agree with Chempace that the issue of “whether alleged acts
or omissions give rise to a single or, alternatively, multiple violations of a single
statutory provision is a question of statutory construction.” In re Woodcrest Mfg.,
Inc., 7 E.A.D. 757, 771 (EAB 1998) (citing In re McLaughlin Gormley King Co.,
6 E.A.D. 339, 344-46 and n.6 (EAB 1996)).12 As in McLaughlin, Chempace has
framed the issue in terms of defining the “unit of violation” under section
12(a)(1)(A) and (E). In McLaughlin, we found that the respondent had committed
one violation of FIFRA section 12(a)(2)(Q), which makes it unlawful for any per-
son to “falsify all or part of any information relating to the testing of a pesticide”
by falsely stating compliance with the Environmental Protection Agency Pesti-
cides Program’s Good Laboratory Practice’s Standard (40 C.F.R. part 160). We
reasoned that the complaint against McLaughlin stated only one violation of
FIFRA section 12(a)(2)(Q) because it was based on a singular false compliance
statement, even though a study conducted by McLaughlin of the pesticide at issue
allegedly failed to conform with 40 C.F.R. part 160 in four respects. See Mc-
Laughlin at 346. Thus, we found that the “unit of violation” under section
12(a)(2)(Q) in that case could be “no smaller than a false compliance statement
containing a single-sentence assertion that a particular study was conducted in
accordance with * * * standards of [40 C.F.R.] part 160.” Id. Accordingly, we
determined the “unit of violation” to be based on the act of submitting a false
statement, not based on the number of reasons for the statement being false.
11 Although it is not clear from the Region’s Reply Brief whether the Region is arguing that
Chempace’s appeal on this issue is untimely or waived, we need not decide this since the Consolidated
Rules of Practice (“CROP”), as amended, 64 Fed. Reg. 40,138, 40,176 (July 23, 1999) (to be codified
at 40 C.F.R. part 22), provide “any party may appeal any adverse order or ruling of the Presiding
Officer * * *.” Id. at 40,186. Because Chempace raised this issue in a motion for accelerated decision
and the Presiding Officer ruled against Chempace, see Order Denying Motion for Accelerated Deci-
sion (ALJ, Feb. 19, 1998), it is appropriate, under the CROP, as amended, 40 C.F.R. § 22.30, for
Chempace to raise this issue here. The fact that Chempace did not put on evidence to challenge the
Region’s exercise of discretion in charging 99 counts did not waive its underlying legal argument as to
the proper statutory interpretation.
12 Chempace admits that the “legislative history of FIFRA * * * sheds no light on how Con-
gress intended to define a single ‘offense.’” Chempace Br. at 14. Yet, Chempace would presume that
Congressional failure to explicitly define the unit of violation under the relevant FIFRA sections im-
plies its disfavor with defining individual violations as the Region and the Presiding Officer have done
here, i.e., each sale or distribution of the unregistered or misbranded pesticide is a violation of FIFRA
section 12(a)(1)(A) or (E). Id. We see no basis, and Chempace has cited none, for this presumption.
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In this case, the Presiding Officer denied Chempace’s request for reconsid-
eration of this issue in the Order Denying Motion for Accelerated Decision. The
Presiding Officer reasoned that:
an additional factor in the decision to deny the motion was its unlike-
lihood of success. On its face, the charge of distributing or selling an
unregistered pesticide is different in character in terms of the statutory
“unit of violation” than the violations under consideration in the cases
of In re Associated Products, Inc. and In re McLaughlin Gormley
King Co. FIFRA § 12(a)(1)(A) renders it unlawful “to distribute or
sell to any person — any pesticide that is not registered.” A straight-
forward interpretation indicates that the unit of violation is the act of
distribution or sale. * * * The cases cited by [Chempace] concern
completely different FIFRA violations, in which the relevant viola-
tions were construed to constitute single violations. They do not lend
support to [Chempace’s] position on the unit of violation for viola-
tions of § 12(a)(1)(A).
Order Denying Motion for Accelerated Decision, at 2.
We agree with the Presiding Officer’s analysis. The plain language of
FIFRA section 12(a)(1)(A) and (E) provides as follows:
[I]t shall be unlawful for any person * * * to distribute or sell to any
person -
(A) any pesticide that is not registered under section 136a of this title
or whose registration has been canceled or suspended, except to the
extent that distribution or sale otherwise has been authorized by the
Administrator under this subchapter.
* * * * * * *
(E) any pesticide which is adulterated or misbranded.
7 U.S.C § 136j(a)(1)(A), (E) (emphasis added).
The prohibited act is the sale or distribution of an unregistered, adulterated,
or misbranded pesticide. Thus, under section 12(a)(1)(A) and (E), the “unit of vio-
lation” is the sale or distribution. Each such sale or distribution of a pesticide to
any person13 constitutes a distinct unit of violation, and thus is grounds for the
13 A “person” is defined under FIFRA as “any individual, partnership, association, corporation,
or any organized group of persons whether incorporated or not.” 7 U.S.C. § 136(s).
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130 ENVIRONMENTAL ADMINISTRATIVE DECISIONS
assessment of a separate penalty. While Chempace argues that the FIFRA provi-
sions in question “merely state a general prohibition against the sale and distribu-
tion of unregistered or misbranded pesticides,” Chempace Br. at 22, the prohibi-
tions are expressed in plain language making it unlawful to sell or distribute any
unregistered or any misbranded pesticides to any person. 7 U.S.C.
§ 136j(a)(1)(A), (E).14
This construction of the statutory language is also supported by the ERP
which provides that “[T]he Agency considers violations that occur for each ship-
ment of a product * * *, or each sale of a product * * * to be independent of-
fenses of FIFRA.” ERP at 25. While we have stated that the ERP “is a non-bind-
ing agency policy whose application is open to attack in any particular case,” see
McLaughlin at 350, Chempace has not pointed to anything in the language, legis-
lative history, or context of section 12(a)(1)(A) and (E) that supports its position
that the unit of violation in this case should be less than the number of individual
sales or distributions made in 1992 and 1993 of its unregistered and misbranded
pesticides as outlined in the Region’s Complaint.
Chempace’s suggested reading of these FIFRA sections as treating a course
of conduct involving multiple sales or distributions as a single violation not only
fails to follow the plain language of the statute, but also undermines the deterrent
purpose that civil penalties are intended to effectuate. For example, Chempace’s
interpretation results in charging a seller or distributor of unregistered pesticides
with only one count of violating FIFRA section 12(a)(1)(A) with a resultant cur-
rent maximum penalty of $5,500,15 regardless of whether that person sold or dis-
tributed all or part of his stock, and whether those sales or distributions were
made to one or hundreds of customers. Thus, the potential liability for civil penal-
ties would no longer provide an incentive to a seller or distributor of unregistered
pesticides to refrain from continuing that unlawful activity after the first illegal
sale or distribution.16
14 We find Chempace’s reliance on In re Microban Prod. Co., No. FIFRA-98-H-01 (ALJ, Feb.
18, 1999) inapposite since the presiding officer’s decision in that case involves FIFRA section
12(a)(1)(B), and as Chempace readily admits, see Chempace Br. at 17, the presiding officer in that
case clearly distinguished sections 12(a)(1)(A) and (E) in his opinion. In re Microban is currently
before the Board on appeal, and our statement here does not express any opinion as to the merits of
that case.
15 The Debt Collection Improvement Act of 1996 directs the Agency to make periodic adjust-
ments of maximum civil penalties to take into account inflation. See 31 U.S.C. § 3701. Inflation ad-
justed penalty amounts have been published at 40 C.F.R. § 19.1 et seq., and apply to violations occur-
ring after January 30, 1997.
16 Chempace cites the way violations were charged in other cases (which included single-count
complaints where multiple sales or distributions of misbranded or unregistered pesticides occurred
over a period of time) as an indication of an inconsistent “application of a standard for § 12(a)(1)(A)
Continued
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CHEMPACE CORPORATION 131
In this case, based on invoices discovered during the inspection of
Chempace by Ohio Department of Agriculture inspectors, the Region alleged 55
separate sales or distributions of the unregistered pesticides Trigger, Uni-rooter,
and GLY, as well as, 43 separate sales or distributions of the misbranded pesti-
cides Uni-Quat 14, Complete, and Eradicate in 1992 and 1993. Chempace’s
Amended Answer did not raise any genuine issues of fact to refute that such sales
or distributions occurred. See Order Granting Partial Accelerated Decision and
Allowing an Amended Complaint (ALJ, Oct. 17, 1997). Accordingly, we find that
the Presiding Officer did not err in finding Chempace liable for 98 violations of
FIFRA section 12(a)(1)(A) and (E).
B. The Appropriateness of the Penalty Imposed
The Presiding Officer is afforded significant discretion under the regula-
tions governing this matter “to assess a penalty different in amount from the pen-
alty recommended to be assessed in the complaint, [so long as he or she] set[s]
forth in the initial decision the specific reasons for the increase or decrease.” See
40 C.F.R. § 22.27(b). The Presiding Officer also “must consider” appropriate
penalty guidelines, but is not bound by them. Id.; see In re DIC Americas, Inc.,
6 E.A.D. 184, 189 (EAB 1995). The duty to consider appropriate penalty guide-
lines “carries with it no obligation to adhere to the penalty policy in a particular
instance. Nor does it suggest that a presiding officer errs in the slightest respect if
he or she decides not to deviate from the penalty policy.” DIC Americas, at 190.
On many occasions, the Board has affirmed the proposition that penalty
policies serve to facilitate the application of statutory penalty criteria, and that
presiding officers and the Board may utilize applicable penalty policies in deter-
mining civil penalty amounts. See, e.g., DIC Americas, at 189 (citing In re Great
Lakes Div. of Nat’l Steel Corp., 5 E.A.D. 355, 374 (EAB 1994)); In re Pacific Ref.
Co., 5 E.A.D. 607, 613 (EAB 1994) (also citing Great Lakes).
This Board generally will not substitute its judgment for that of a presiding
officer when the penalty assessed falls within the range of penalties provided in
the penalty guidelines, absent a showing that the presiding officer committed an
abuse of discretion or a clear error in assessing the penalty. See Pacific Ref., at
613 (EPCRA § 313 penalty policy); see also In re Employers Ins. of Wausau and
Group Eight Tech., Inc., 6 E.A.D. 735, 757 (EAB 1997) (reviewing application of
Polychlorinated Biphenyls (“PCB”) penalty policy); In re Ray Birnbaum Scrap
Yard, 5 E.A.D. 120 (EAB 1994) (involving PCB penalty policy). We now turn to
(continued)
and § 12(a)(1)(E) violations.” Chempace Br. at 18-21. We see no inconsistency here. The fact that the
Agency has the authority to charge separate violations does not eliminate its enforcement discretion to
choose not to do so. As Chempace notes, the issue of what constitutes the appropriate “unit of viola-
tion” was not raised in any of those cases. Id.
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132 ENVIRONMENTAL ADMINISTRATIVE DECISIONS
the issues raised on appeal regarding the Presiding Officer’s penalty determination
in this case.
1. Ability to Pay
Both parties take issue with the Presiding Officer’s implementation of the
ability-to-pay factor of the penalty calculation.17 The Region charges that the Pre-
siding Officer erred by concluding that Chempace met its burden of production
regarding its inability to pay the Region’s proposed penalty of $200,000, in con-
travention of this Board’s precedent in In re New Waterbury, Ltd., 5 E.A.D. 529
(EAB 1994).18 Region’s Appeal Brief at 2, 16-27 (“Region’s Br.”). Chempace,
however, argues that the Presiding Officer erred by imposing the burden on it to
“put forth evidence on an amount of civil penalty it could pay after the Presiding
Officer concluded that [the Region] had failed to carry its burden * * * .”
Chempace Br. at 23.
The Board held, in New Waterbury, that the Region bears the burden of
proof on establishing the appropriateness of a penalty after considering all of the
statutory factors.19 More particularly as to the ability-to-pay factor, we stated:
Where ability to pay is at issue going into a hearing, the Region will
need to present some evidence to show that it considered the respon-
dent’s ability to pay a penalty. The Region need not present any spe-
cific evidence to show that the respondent can pay or obtain funds to
pay the assessed penalty, but can simply rely on some general finan-
cial information regarding the respondent’s financial status which can
support the inference that the penalty assessment need not be reduced.
Id. at 542-43.
New Waterbury also instructs that:
17
FIFRA provides that penalty calculations take into account “the appropriateness of such pen-
alty to the size of the business of the person charged, the effect on the person’s ability to continue in
business, and the gravity of the violation.” 7 U.S.C. § 136l(a)(4); see ERP at 23-25 (setting forth
methods for determining ability-to-pay).
18 We note that New Waterbury involved violations of section 6(e) of the Toxic Substances
Control Act (“TSCA”), 15 U.S.C. § 2605(e), and the assessment of a civil penalty under the “Guide-
lines for the the Assessment of Civil Penalties Under Section 16 of TSCA; PCB Penalty Policy” (“PCB
Policy”), 45 Fed. Reg. 59,770 (Sept. 10, 1980). The ERP used in this case and the PCB Policy simi-
larly construe the statutory factors of ability-to-pay and ability to continue in business as a single
factor that must be considered in assessing a penalty. See ERP at 23; PCB Policy at 59,770.
19 The complainant’s burden “focuses on the overall appropriateness of the proposed penalty
in light of all the statutory factors, rather than any particular quantum of proof for individual statutory
factors.” In re Woodcrest Mfg., Inc., 7 E.A.D. 757, 773 (EAB 1998).
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CHEMPACE CORPORATION 133
Once the respondent has presented specific evidence to show that de-
spite its sales volume or apparent solvency it cannot pay any penalty,
the Region as part of its burden of proof in demonstrating the “appro-
priateness” of the penalty must respond either with the introduction of
additional evidence to rebut the respondent’s claim or through cross
examination it must discredit the respondent’s contentions.
Id. at 543. Accordingly, the Complainant has the initial burden of production to
establish that the penalty is appropriate and as part of that burden, that a respon-
dent generally has the ability to pay the proposed penalty.20 The burden of produc-
tion then shifts to the respondent to establish with specific information that the
proposed penalty assessment is excessive or incorrect. If a respondent satisfies its
burden of production, the Complainant must rebut respondent’s contentions
through rigorous cross-examination or through the introduction of additional
information.
We now turn to the Region’s contention that the Presiding Officer erred in
finding that Chempace carried its burden of production with respect to its inability
to pay a $200,000 penalty in this case. First, the Region argues that the Presiding
Officer could not have properly concluded that Chempace carried its burden of
production because Chempace did not provide the specific documentary informa-
tion21 that the Region’s expert, Ms. Resseguie, said she needed to conduct a com-
20 As we observed in New Waterbury, since the complainant’s ability to obtain financial infor-
mation about a respondent is limited at the outset of the case, a respondent’s ability to pay is presumed
until respondent puts it in issue. New Waterbury at 541. Moreover, once a respondent has raised the
issue, it must provide sufficient information to enable the complainant to assess ability to pay. Failure
to do so results in a waiver of respondent’s objection to a penalty based on inability to pay. Id. at 542.
As discussed below, in this case the Presiding Officer determined that Chempace had provided suffi-
cient information to enable the Region to make an ability-to-pay determination.
21 The Region sought, among other things:
1) General Financial Information — trial balances for fiscal year 1997 ; charts of accounts for
fiscal year 1997; general ledgers for the month ending June 30, 1996, and the six-month period ending
June 30, 1997; corporate tax returns of a Chempace subsidiary, Chemical Dust Control, Inc.
2) Assets Information — cumulative depreciation schedules; purchase contracts, invoices, or
other purchase documentation; loan documents for assets purchased since July 1992; sales agreements
and bills of sale since 1992;
3) Investment Information — loan, sales, or other contracts between Chempace and its subsidi-
ary between 1996 and 1997; cost and fair market value of corporate assets;
4) Liability Information — loan documents; settlement sheets; closing statements; and
5) Stockholder Loans — notes between Chempace and stockholders from 1992; corporate min-
utes; and profit-sharing plans.
See Region’s Br. at 20; Other Discovery Motion at 7-10.
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134 ENVIRONMENTAL ADMINISTRATIVE DECISIONS
plete ability-to-pay analysis. See Region’s Br. at 20-23; supra note 10. The Re-
gion also suggests that the Presiding Officer’s failure to require disclosure of the
specific financial information requested prevented the Region from “refut[ing] or
evaluat[ing]” conclusions in his Initial Decision. Id. at 23. We disagree.
The Board generally reviews the Presiding Officer’s determination de novo.
See CROP, as amended (to be codified at 40 C.F.R. § 22.30(f)) (conferring au-
thority on the Board to “adopt, modify, or set aside” the findings and conclusions
of the presiding officer); In re Ocean State Asbestos Removal, Inc., 7 E.A.D 522,
530 (EAB 1998). When a Presiding Officer has “the opportunity to observe the
witnesses testify and to evaluate their credibility, his factual findings are entitled
to considerable deference * * *.” In re Echevarria, 5 E.A.D. 626, 638 (EAB
1994) (citing In re Great Lakes Div. of Nat’l Steel Corp., 5 E.A.D. 355 (EAB
1994)); see also, In re Ocean State Asbestos Removal, Inc. 7 E.A.D. 522, 530
(EAB 1998).
The Presiding Officer concluded that the preponderance of the evidence, in
the form of Mr. Bernstein’s testimony, Chempace’s corporate tax returns, and
Chempace’s financial statements showed that Chempace was unable to pay the
proposed $200,000 civil penalty without liquidating assets necessary to continue
operating, and that Chempace was unable to obtain loans to pay the proposed
penalty. While it may have been useful for the Region to review the specific de-
tailed financial information it sought in this case, we are not convinced that the
Presiding Officer abused his discretion in denying such additional discovery.
The CROP provides for “other discovery,” after the prehearing exchange
required by 40 C.F.R. § 22.19(b), only upon the Presiding Officer’s
determination:
(i) That such discovery will not in any way unreasonably delay the
proceeding;
(ii) That the information to be obtained is not otherwise obtainable;
and
(iii) That such information has significant probative value.
40 C.F.R. § 22.19(f). Making this determination involves the exercise of consid-
erable discretion since it requires a subjective judgment on the need for, and value
of, the additional discovery and the possible delay and disruption it might entail.
This determination is most suitably made by the Presiding Officer. The Presiding
Officer’s determination is appropriately entitled to considerable deference. This is
consistent with federal court precedent that the appropriate standard of review for
discovery orders is the abuse of discretion standard. See FDIC v. Ogden Corp.,
202 F.3d 454, 460 (1st Cir. 2000) (“Trial judges enjoy broad discretion in the han-
dling of interstitial matters, such as the management of pretrial discovery.”); Dorf
& Stanton Comm., Inc. v. Molson Breweries, 100 F.3d 919, 922 (Fed. Cir. 1996)
VOLUME 9
CHEMPACE CORPORATION 135
(standard of review regarding discovery is an abuse of discretion standard); Rae v.
Union Bank, 725 F.2d 478, 481 (9th Cir. 1984); but see Haines v. Liggett Group,
Inc., 975 F.2d 81, 92 (3rd Cir. 1992) (proper standard of review for discovery
orders is the “clearly erroneous or contrary to law” standard).22 Affording consid-
erable deference to a Presiding Officer’s discovery ruling is particularly appropri-
ate where the issue involved is the amount of the penalty, an issue for which the
Presiding Officer has broad discretion.23
Within the context of determining the appropriate penalty, we see no abuse
of discretion by the Presiding Officer in denying the Region’s motion for addi-
tional discovery. The Presiding Officer specifically ruled that Chempace had “al-
ready produced five years’ tax returns and financial statements. * * * If the addi-
tional undisclosed documents are shown at the hearing to be relevant to the
penalty assessment, adverse inferences could be drawn against [Chempace’s] po-
sition.” Order Denying Motions at 2 (ALJ, Feb. 27, 1998). While the Presiding
Officer did not explicitly recite the factors under 40 C.F.R. § 22.19(f)(1) in de-
nying the Region’s request, this shortcoming does not demonstrate an abuse of
discretion by the Presiding Officer in issuing his Order Denying Motions. See
FDIC v. Ogden Corp., 202 F.3d 454, 460 (declining to abandon abuse of discre-
tion standard where discovery order was granted by endorsement and without
elaboration). Rather, it appears from our reading of the reasons given by the Pre-
siding Officer for denying the Other Discovery Motion that he had concluded,
given the Region’s limited initial burden of proof under New Waterbury and the
evidence already provided during the pre-hearing exchange, that such further dis-
covery would not necessarily have “significant probative value.”24 40 C.F.R.
§ 22.19(f)(1)(iii). Under these circumstances, we see no abuse of discretion on the
part of the Presiding Officer in denying the additional discovery sought by the
Region to buttress its penalty calculation.
22
The Board is not bound by the Federal Rules of Civil Procedure and related practice; how-
ever, those rules and related practice can nonetheless be used to inform our analysis of relevant issues.
See In re Zaclon, Inc., 7 E.A.D. 482, 490 n.7 (EAB 1998); In re Lazarus, Inc., 7 E.A.D. 318, 330
(EAB 1997).
23
See In re Employers Ins. of Wausau and Group Eight Tech., Inc., 6 E.A.D. 735, 758 (EAB
1997) (penalty assessments are ultimately constrained only by statutory penalty criteria, caps limiting
the size of the penalty, the regulatory requirement to provide “specific reasons” for the penalty as-
sessed (40 C.F.R. § 22.27(b)), and the Administrative Procedure Act requirement that sanctions be
rationally related to the offense committed) (citing DIC Americas, at 189 and Pacific Ref. Co., at 613
(“the Board will generally not substitute its judgment for that of the Presiding Officer absent a showing
that the Presiding Officer has committed an abuse of discretion or a clear error in assessing the
penalty.”)).
24 The Presiding Officer’s January 12, 1998, Order on Discovery, while not ruling on the Re-
gion’s request to compel further discovery, stated “it may well not be necessary for the Region to
pursue this type of detailed analysis of Respondent’s finances in order to meet its burden of proof
[under New Waterbury].” Order on Discovery at 2 (ALJ, Jan. 12, 1998).
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136 ENVIRONMENTAL ADMINISTRATIVE DECISIONS
We also decline to find error in the Presiding Officer’s application of New
Waterbury in this case. Our opinion in New Waterbury specifically contemplated
that once respondent had introduced rebuttal evidence, a complainant could carry
its ultimate burden of persuasion either by introducing “additional evidence,” or
by discrediting the respondent’s evidence through cross-examination. New Water-
bury, 5 E.A.D. at 543. Here, after Chempace introduced Mr. Bernstein’s testimony
based only on the pre-hearing exchange evidence, the Region failed to exercise its
opportunity to vigorously cross-examine Mr. Bernstein on the ability-to-pay issue;
his reliance on unaudited financial statements; and his failure to provide or bring
to the hearing his detailed notes supporting his conclusions. It did not ask about
any other documents it believed would be relevant. Such cross-examination, while
not affirmatively establishing how large a penalty Chempace could pay, may have
successfully shown that Chempace could not carry its burden to show with spe-
cific evidence that it could not pay the penalty sought. Our review of the hearing
transcripts indicates that the Region attempted to undermine Mr. Bernstein’s cred-
ibility by questioning him about his personal relationships with Mr. Wooddell and
Mr. Shall, see Hearing Transcript (“Hearing Tr.”), at 528-29, and his status as a
member of the Board of Directors.25 The remainder of the Region’s cross-exami-
nation focused primarily on the detailed information contained in Chempace’s
1995-96 financial statement. In our opinion, the testimony provided during the
Region’s cross-examination simply clarified the content of the document, but did
not elicit any inconsistencies with Mr. Bernstein’s opinion that Chempace was
unable to pay the proposed penalty. See Hearing Tr. at 533-56. Nor did the cross-
examination demonstrate the Region’s need for the additional discovery it sought.
In the absence of vigorous cross-examination by the Region of Chempace’s expert
witness showing the alleged deficiencies in that witness’ analysis and the lack of
support for the witness’ conclusions, we cannot see how the Presiding Officer
veered from our instructions in New Waterbury, or failed to properly evaluate the
preponderance of the evidence.26 Accordingly, we see no clear error in the record
25 In that regard, the Region inquired about a disclaimer included in Chempace’s 1995-96 com-
parative financial statement indicating that Mr. Bernstein, as author of the statement, was “not inde-
pendent in [his] relationship with Chempace Corporation.” Hearing Tr. at 533. Mr. Bernstein explained
that the disclaimer was included because he is an officer of the corporation. Id.
26 We note that some of the additional information sought by the Region was for the purpose
of showing that at least some of the $200,000 proposed penalty could be obtained from a related
entity, Chemical Dust Control, Inc., a wholly-owned subsidiary of Chempace. In so doing, the Region,
at hearing and on appeal, attempts to equate Chempace’s corporate structure with New Waterbury’s
complex corporate structure and financial status. The comparison is unwarranted. In New Waterbury,
we applied the four percent guideline of the PCB Policy to assess a $24,000 penalty. We then ex-
amined New Waterbury’s corporate structure to determine if further reductions in the penalty assessed
were warranted. Upon finding New Waterbury to be in operation largely due to the financial support
received from Winston Management, a company solely-owned by Mr. Trevor Roberts, who was the
largest partner of New Waterbury, we declined to reduce the penalty further. New Waterbury, 5 E.A.D.
at 548.
Continued
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CHEMPACE CORPORATION 137
before us in the Presiding Officer’s conclusion that Chempace carried its burden
of production in refuting the Region’s prima facie showing of ability to pay a
$200,000 penalty.
Chempace argues that the Presiding Officer erred by imposing the burden
on it to “put forth evidence on an amount of civil penalty it could pay after the
Presiding Officer concluded that [the Region] had failed to carry its burden
-
- *.” Chempace’s Br. at 23. The Presiding Officer’s Initial Decision does state
that “Chempace did not offer evidence on a proposed specific alternate smaller
penalty amount that it could pay.” Initial Decision at 22.27 This characterization of
the record by the Presiding Officer, put in context, does not amount to placing a
burden on Chempace to demonstrate an appropriate penalty. The Initial Decision,
also states that “[i]n the absence of any more specific evidence on the amount
[Chempace] could pay, it is appropriate to rely on the ERP’s guideline of 4% of
average gross income.” Id.
We believe Chempace is misreading both the record and New Waterbury.
As we stated in New Waterbury, the respondent must show an inability to pay
“any penalty” to fully meet its burden of production in response to the complain-
ant’s prima facie case. See New Waterbury, 5 E.A.D. at 543, quoted supra section
II.B.1 (emphasis added). While Chempace successfully refuted the assertion that
it could pay the full $200,000 penalty, it obviously did not convince the Presiding
Officer that it could not pay any penalty. See Initial Decision at 22. Thus, rather
than placing a burden on Chempace, the Presiding Officer was merely exercising
his authority under the CROP to consider the record, the statutory penalty criteria,
and the applicable penalty policy, see 40 C.F.R. § 22.27(b), to determine an ap-
propriate penalty. We see no error as Chempace claims and decline to disturb the
Presiding Officer’s penalty determination on this basis. - *.” Chempace’s Br. at 23. The Presiding Officer’s Initial Decision does state
(continued)
Here, Chempace Dust Control, Inc. was incorporated in 1996 (several years after the alleged
violations). It had sales activity representing only 5-6 percent of Chempace’s sales, and experienced a
$20,966 loss of gross profits in the 1995 tax year. See Hearing Ex. 6, at 1. This is hardly indicative of
“a complex arrangement of interrelated small companies,” see New Waterbury, at 547, that the Presid-
ing Officer need have allowed the Region to examine in determining Chempace’s ability to pay. Even
if it were, as stated in New Waterbury, the inquiry should be utilized in considering whether to “make
further reductions from the amount recommended by the four percent formula.” Id. Here, the Presiding
Officer did not reduce the penalty amount below the four percent level. Based on this evidence, we can
see no error in the Presiding Officer’s decision to deny additional discovery concerning Chempace
Dust Control, Inc.
27 Our review of the record indicates that this is an accurate characterization of the record.
Chempace, throughout the proceedings below, claimed an inability to pay the proposed $200,000 pen-
alty, but nothing in the record suggests any particular penalty amount that Chempace indicated it could
pay.
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138 ENVIRONMENTAL ADMINISTRATIVE DECISIONS
2. Application of the Four Percent of Average Gross Annual
Income Guideline
Chempace argues that the Presiding Officer erred in applying a four percent
of average gross annual income guideline to calculate the civil penalty once the
Region failed to carry its burden of persuasion on the ability of Chempace to pay
the entire proposed penalty. We are unswayed by Chempace’s argument. As we
noted earlier, the Presiding Officer is afforded significant discretion under the
CROP to “to assess a penalty different in amount from the penalty recommended
to be assessed in the complaint, [so long as he or she] set[s] forth in the initial
decision the specific reasons for the increase or decrease.” See
40 C.F.R. § 22.27(b). The Presiding Officer also “must consider” appropriate
penalty guidelines, but is not bound by them. Id.; see DIC Americas, at 189.
Here, the Presiding Officer found, based on a preponderance of the evi-
dence, that the Region’s proposed penalty was not appropriate. Accordingly, the
Presiding Officer looked to the ERP for an alternative method to determine a pen-
alty that would also account for Chempace’s limited ability to pay. The ERP pro-
vides three methods for taking into account a respondent’s ability to pay. See ERP
at 23.28 Based on the evidence before him, the Presiding Officer concluded that
while Chempace could not pay the penalty as proposed, “it is appropriate to rely
on the ERP’s guideline of 4% of average gross income.” Initial Decision at 22.
This ERP guideline provides for averaging the most current and preceding three
years’ gross income and multiplying that average by four percent. Accordingly,
the Presiding Officer utilized the financial data current at the time of the prehear-
ing exchange (1994-96 financial statements), supplemented by a Dun & Brad-
street report of gross sales through June 30, 1997. See Initial Decision at 23.
We see no error in the Presiding Officer’s application of the statutory abil-
ity-to-pay factor, his utilization of the FIFRA ERP four percent of average gross
income guideline, and his rationale for applying it in this case. In fact, the Presid-
ing Officer made it clear early in this proceeding that the four percent guideline
could be utilized to determine the appropriate penalty in this case. See Order on
Discovery at 2 (ALJ, Jan. 12, 1998). In that order, the Presiding Officer stated:
I note that the FIFRA Enforcement Response Policy also provides an-
other method for estimating a respondent’s ability to
pay — calculating four percent of a company’s (and affiliated corpo-
rate entities’) gross sales. I suggest the parties use this guideline as a
starting point for settlement negotiations.
28 The ERP outlines the three methods as: 1) a detailed tax, accounting, and financial analysis;
2) a guideline of four percent of average gross annual income; or 3) ABEL (a computer model). See
ERP at 23.
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CHEMPACE CORPORATION 139
Id. Chempace was on notice of other potential methods to calculate ability to pay
and was aware that showing it could not pay the penalty as proposed in the com-
plaint was not the same thing as showing an inability to pay any penalty. It knew
that the four percent guideline could be used in such circumstances and it had an
opportunity to present evidence to demonstrate why such method was inappropri-
ate. Here, the Initial Decision suggests that Chempace presented its best case to
refute the appropriateness of the Region’s proposed penalty based on the ability-
to-pay factor, but in the absence of evidence that no penalty is appropriate, the
Presiding Officer is authorized to consider the ERP’s four percent guideline, and
to craft an appropriate penalty. Thus, we decline to disturb the penalty
calculation.29
3. Chempace’s Compliance History and Culpability
Chempace argues that the Presiding Officer erred in determining
Chempace’s culpability. Chempace Br. at 29-33. Chempace first alleges that the
Presiding Officer erred by concluding a prior violation was “the primary factor
behind [Chempace’s] culpability.” Id. at 30. Second, Chempace argues that the
evidence does not support the Presiding Officer’s conclusion that Chempace
“failed to train or instruct employees to ensure that cancelled [sic] pesticides
would no longer be produced in the warehouse.” Id. at 31.
Chempace’s first argument is based on a claim that its only prior FIFRA
violation, a reporting violation under FIFRA section 7(c)(1), 7 U.S.C.
§ 136e(c)(1), should have been resolved by the Region with only a notice of
warning rather than a civil complaint.30 If it had been resolved with only a notice
of warning, Chempace argues, this infraction would not have been considered a
prior violation under the ERP, and thus would not have increased the gravity com-
ponent of the penalty for the current violations.
29 Chempace also suggests error in the Presiding Officer’s use of its most recent financial in-
formation to calculate the four percent of average gross income. Chempace appears to argue that the
delay in reaching the hearing in this case results in an unfair and inequitable application of the penalty
calculation since its earnings for 1992 and 1993 were significantly less than in 1998 when the hearing
occurred. We are unswayed since the record shows that any delay was not solely attributable to the
Region. We agree with the Presiding Officer’s decision to use 1994-97 data in the record since the
ERP provides for use of the “current year and the prior three years.” See ERP at 23. Here, the Presiding
Officer noted that the statute “speaks in terms of the respondent’s ability to continue in business,” see
Initial Decision at 23, and correctly concluded that use of the most recent financial data “would protect
companies that have a decline in earnings since the violations, as easily as it could increase the poten-
tial liability * * *.” Id. Accordingly we do not disturb the Presiding Officer’s penalty calculation.
30
See supra n.3 (describing the Region’s 1991 enforcement action and the Consent Order be-
tween the parties).
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140 ENVIRONMENTAL ADMINISTRATIVE DECISIONS
By way of background, the ERP requires consideration of five types of cir-
cumstances for purposes of adjusting the base penalty: (1) the toxicity of the pes-
ticide; (2) the harm to human health; (3) the harm to the environment; (4) the
respondent’s compliance history; and (5) culpability. See ERP, app. B. These five
circumstances, the last two of which appear to be at issue here, reflect the gravity
of the misconduct. For each circumstance, values are assigned for various gravity
levels which are then added up for a total gravity adjustment value. The magni-
tude of the total gravity adjustment value dictates the percentage by which the
base penalty should be increased or decreased to reflect the circumstances of the
case. See ERP, app. C-1, tb. 3. With respect to the compliance history element,
the ERP provides that, “[a] notice of warning (NOW) will not be considered a
prior violation for the purposes of the gravity adjustments criteria, since no oppor-
tunity has been given to contest the notice.” ERP, app. B, n.4.
In this case, the Presiding Officer adopted the Region’s calculation of the
gravity-based penalty, see Initial Decision at 14, but stated that his decision “as-
sesse[d] a reduced penalty on the [sic] primarily on the effect of the proposed
penalty on Chempace’s ability to remain in business.” Id. at 14-15. Chempace’s
first argument calls upon the Board to review the Region’s decision in the previ-
ous enforcement action against Chempace wherein the Region issued a complaint
seeking civil monetary penalties. See supra note 3. Chempace contends that it
should have received a warning rather than a civil penalty assessment in that case.
However, absent specific statutory guidance that constrains discretion, such
prosecutorial choices are ordinarily matters within the prerogative of the responsi-
ble enforcement officials. See In re Green Thumb Nursery, Inc. 6 E.A.D. 782,
799-800 (EAB 1997) (FIFRA does not “require the Agency to issue warnings in-
stead of penalties, or to impose penalties of zero. * * * the Administrator * * *
retains the discretion to assess a penalty.”); In re Wyoming Refining Company,
2 E.A.D. 221, 223 (CJO 1986) (“The decision whether to issue a warning or a
complaint is a matter within Complainant’s enforcement discretion.”). Under sec-
tion 14(a)(4) of FIFRA, the Administrator may — but is not required to — issue a
warning in lieu of assessing a penalty whenever there is a finding that the viola-
tion occurred despite the exercise of due care or did not cause significant harm to
health or the environment. In light of the discretion conferred by FIFRA, the
decision to assess a penalty or to issue a warning is only subject to review for
clear abuse. See, e.g., In re Arapahoe County Weed Dist., 8 E.A.D. 381, 392
(EAB 1999) (no abuse found); In re Aero-master, Inc., 1 E.A.D. 916, 918 (CJO
1984) (no abuse shown). Our disinclination to review the previous case involving
Chempace is further bolstered by the fact that the Region’s decision was made in a
prior enforcement case, the record of which is not directly before us on appeal.
Moreover, Chempace’s argument is particularly ill-founded since the resolution of
the prior enforcement action, which Chempace would have us question, was in the
form of a Consent Order signed by Chempace and in which Chempace agreed to
pay a penalty. See Initial Decision at 6. We see no error in the Presiding Officer’s
reliance on this evidence of a prior violation to support the gravity adjustment
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CHEMPACE CORPORATION 141
score proposed by the Region in its penalty calculation.31
Second, with respect to the culpability factor, we are not persuaded that the
Presiding Officer committed error in finding knowing and willful conduct based
on Chempace’s failure to train or instruct employees appropriately. Chempace ar-
gues that the Presiding Officer erred by failing to appropriately consider other
evidence that “Mr Shall and Mr. Wooddell were spending most of their time on
the road,” see Chempace Br. at 31, that Chempace “employed a succession of
warehouse men, due to the company’s financial straits and inability to pay com-
petitive wages,” see id. at 32, and that “Mr. Wooddell also specifically indicated
he was not aware of the unlawful sales.” Id. We disagree with Chempace’s conten-
tions. We have specifically rejected the “contention that * * * employee turnover
and * * * strained financial condition shows that the Presiding Officer commit-
ted clear error or an abuse of discretion” in not reducing a penalty. In re Steeltech,
Ltd., 8 E.A.D. 577, 592 (EAB 1999) (noting further that “compliance with appli-
cable environmental and safety regulations are basic requirements of operating a
business in this country.”). Furthermore, our reading of the Initial Decision leads
us to conclude that the Presiding Officer appropriately focused on the evidence
that Chempace’s officers failed to “train or instruct their employees to ensure that
canceled pesticide products would no longer be produced in the warehouse. ” Ini-
tial Decision at 16. The Presiding Officer described what he called a “‘see-no-evil,
hear-no-evil’ type of scenario,” occurring a mere five months after Chempace
signed the earlier Consent Order, and three months after cancellation of
Chempace’s establishment number. Id. He went on to state that:
[i]f Mr. Shall and Mr. Wooddell did not actually know of the sales of
canceled and misbranded pesticides, they certainly should have
known. Regardless of their knowledge, their failure to take any action
to prevent these violations constitutes an omission that amounts to
wilfulness, rather than mere negligence.
Id. While Chempace may not agree with his conclusion, this recitation of inaction
by Chempace officers demonstrates that the Presiding Officer did consider evi-
dence that Chempace officers were not present, and that they had no knowledge
of the violations. We conclude that the Presiding Officer’s finding on culpability
does not represent clear error or an abuse of discretion.
Finally, even if Chempace’s assertions were correct, we fail to understand
how this would constitute reversible error or an abuse of discretion in assessing
the penalty in this case. The Presiding Officer reasoned, “even if the prior viola-
31 See also, In re Ocean State Asbestos Removal, Inc., 7 E.A.D. 522, 552 (EAB 1998) (consid-
eration of prior unadjudicated notices of violation or consent orders is appropriate in the penalty as-
sessment analysis).
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142 ENVIRONMENTAL ADMINISTRATIVE DECISIONS
tion is not considered in the ERP calculation, it only results in a 10 % reduction of
the [base] penalty. This is superseded by the reduction assessed by this decision
based on the effect on [sic] the Respondent’s ability to continue in business.” Ini-
tial Decision at 19. We agree with the Presiding Officer’s assessment that any
argument about Chempace’s compliance history or culpability is overtaken (in
Chempace’s favor) by the Presiding Officer’s ability-to-pay analysis. Accordingly,
we see no error as alleged by Chempace in the Presiding Officer’s analysis of
Chempace’s culpability.
4. Failure to Consider Other Gravity Adjustments
Lastly, Chempace argues that the Presiding Officer failed to consider a
number of mitigating factors and circumstances which the ERP does not take into
account. In particular, Chempace asserts error in the Presiding Officer’s failure to
distinguish between sales of “insubstantial amounts, e.g., on the order of 1 gallon,
and those sales of more substantial amounts, e.g., 55 gallons,” Chempace Br. at
-
Chempace also asserts as error the Presiding Officer’s failure to “distinguish
between pesticides that were previously registered and those that were never reg-
istered.” Id. Accordingly, Chempace argues that deviation from the ERP, or re-
duction in the gravity levels associated with the violations is appropriate.32As we have stated previously, the Presiding Officer “must consider” appro-
priate penalty guidelines, but is not bound by them. Id.; see DIC Americas, at 189.
The duty to consider appropriate penalty guidelines “carries with it no obligation
to adhere to the penalty policy in a particular instance. Nor does it suggest that a
presiding officer errs in the slightest respect if he or she decides not to deviate
from the penalty policy.” DIC Americas, at 190. Here, the Presiding Officer con-
sidered Chempace’s argument that the large number of sales involving small
amount of pesticides “results in an exaggerated penalty amount.” Initial Decision
at 17. Yet, the Presiding Officer concluded that “[a]lthough many of the individual
sales were small, the harm to the EPA’s pesticides regulatory program is consider-
able when a company sells and produces multiple unregistered and misbranded
pesticides for over a year.” Id. at 18. We have held that harm to the integrity of a
regulatory program is appropriate to consider in assessing an appropriate penalty.
See In re Predex Corp., 7 E.A.D. 591, 601 (EAB 1998) (citing Green Thumb
Nursery, 6 E.A.D. 782 (EAB 1997)). Given the number of sales, and the number
of unregistered and misbranded pesticides at issue, the pesticides regulatory pro-
gram, lacking data on these transactions, would be significantly harmed if any
environmental or human health problems were to result from Chempace’s
activities.32 We note that the Presiding Officer had already determined, in his partial accelerated deci-
sion, that “the magnitude of the reduction for Respondent’s ability to pay virtually supersedes the other
penalty factors related to the gravity of the violations.” PAD at 11; supra Part II.B.3.
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CHEMPACE CORPORATION 143
Chempace also claims that the Presiding Officer erred by failing to take into
account sales of pesticides that were previously registered versus those pesticides
that were never registered. Chempace Br. at 34-35. Chempace argues that “pesti-
cides that have been previously registered have passed the rigorous review pro-
cess in 4[0] C.F.R. § 152 and determined to be safe for humans and the environ-
ment; whereas pesticides which have never been registered have not.” Id. We are
unpersuaded by Chempace’s argument. As we have outlined earlier, FIFRA sec-
tion 12(a)(1)(A), makes it unlawful to distribute or sell “any pesticide that is not
registered under section 136a of this title or whose registration has been canceled
or suspended * * *.” 7 U.S.C 136j(a)(1)(A). Chempace has not shown any mean-
ingful distinction in the statute between sales or distributions of pesticides that
have never been registered and those whose registrations have lapsed (and been
canceled as a result) — both are unlawful.33 The pesticides regulatory program is
undermined by the sale of any unregistered pesticides, even if, as in this case, the
sales involve pesticides which are no longer registered because their registrations
had lapsed. We see no reason why the Presiding Officer need make such a distinc-
tion for the purpose of calculating his penalty in this case.34 We are not persuaded
that the Presiding Officer committed error by following the ERP and not deviating
from the policy as Chempace suggests.35 We decline to disturb the penalty
calculation.
III. CONCLUSION
Upon consideration of the issues raised on appeal by Chempace and the
Region, we affirm the Presiding Officer’s Initial Decision in its entirety. Pursuant
to FIFRA section 14(a)(4), 7 U.S.C. § 136l(a)(4), a civil penalty of $92,193 is
hereby assessed against Chempace. Chempace shall pay the full amount of the
civil penalty within thirty (30) days after the filing of this Final Decision. Pay-
ment shall be made by forwarding a certified or cashier’s check payable to the
Treasurer, United States of America, at the following address:
33 The ERP, in assigning gravity levels to violations of section 12(a)(1)(A), does not distin-
guish between pesticides that have never been registered and pesticides that are canceled. See ERP at
A-1.
34 We note that the Presiding Officer in evaluating “[t]he true gravity of Chempace’s viola-
tions,” looked to “its extended pattern of engaging in these illegal sales and production activities.”
Initial Decision at 18.
35 The Presiding Officer also cited the reduction in the penalty based on ability to pay as a
further reason for not departing from the ERP in determining the gravity of the violations. See Initial
Decision at 19.
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144 ENVIRONMENTAL ADMINISTRATIVE DECISIONS
EPA — Region V
Sonja R. Brooks
Regional Hearing Clerk
P.O. Box 70753
Chicago, Illinois 60673
So ordered.
VOLUME 9
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