Employers Insurance of Wausau and Group Eight Technology, Inc.

Plain-English summary

A 1987 fire destroyed a building owned by Group Eight Technology, Inc. in Wyandotte, Michigan. Seven electrical transformers remained at the site during demolition, including one PCB Transformer whose fluids were later mixed with fluids from other transformers and sent to an oil recycling facility rather than an incinerator. EPA alleged that Group Eight and its insurer, Employers Insurance of Wausau, violated the PCB regulations. The Board affirmed the dismissal of EPA's disposal claim against Wausau because the record did not establish that its conduct violated the regulations. It vacated the penalty ruling against Group Eight because the ALJ improperly rejected EPA's reliance on the PCB Penalty Policy without first giving EPA notice that additional support would be required, and remanded for a new penalty assessment.

Decision snapshot

• Cited authorities: 15 U.S.C. §§ 2605, 2614, and 2615; 40 C.F.R. §§ 22.24, 22.30, 761.3, 761.60, and 761.70; 5 U.S.C. § 551; 42 U.S.C. § 9601
• Outcome: Wausau's initial decision was affirmed. Group Eight's penalty ruling was vacated in part and remanded for further penalty assessment proceedings.
• Key point: An EPA penalty policy may support a proposed penalty when the agency shows that it considered the statutory factors, but an ALJ must give notice before demanding additional evidentiary support and then rejecting the proposal for lack of it.

Full text (EPA EAB public release)

EMPLOYERS INSURANCE OF WAUSAU 735
AND GROUP EIGHT TECHNOLOGY, INC.

IN RE EMPLOYERS INSURANCE OF WAUSAU AND
GROUP EIGHT TECHNOLOGY, INC.

TSCA Appeal No. 95-6

ORDER AFFIRMING INITIAL DECISION IN PART
AND VACATING AND REMANDING IN PART

Decided February 11, 1997

Syllabus

These administrative enforcement proceedings, arising under sections 15 and 16 of the
Toxic Substances Control Act (*TSCA”), 15 U.S.C. §§ 2614 and 2615, pertain to events that
occurred in the aftermath of an August 1987 fire that destroyed a building in Wyandotte,
Michigan. Respondent Group Eight Technology, Inc. (Group Eight”) was the owner of the
building at the time of the fire, and respondent Employers Insurance of Wausau ('Wausau”) was
Group Eight’s insurer under a property insurance policy providing coverage against certain fire
Josses at the Wyandotte location (‘Group Eight site”). After the fire, Group Eight presented a
claim under its policy with Wausau.

Between the time of the fire and the early part of 1989, seven electrical transformers
remained at the Group Eight site, while the building that had occupied the site was undergoing
demolition. During that time, the storage and marking requirements prescribed in 40 C.F.R. Part
761 (the “PCB Rule”) were not observed, Consequently, in the action filed against it by U.S. EPA
Region V, Group Eight was alleged to have committed several violations of those requirements.
The EPA administrative law judge (“ALJ”) who presided at the hearing into this matter conclud-
ed that Group Eight was indeed subject to liability for the alleged storage and marking viola-
tions, and his conclusions in that regard were not timely appealed.

The Region also alleged that both Group Eight and Wausau had violated one of the “dis-
posal” provisions of the PCB Rule. One of the seven transformers at the Group Eight site was a
“PCB Transformer” as defined in 40 C.F.R. § 761.3, meaning that it contained an extremely high
concentration of polychlorinated biphenyls and that its contents could lawfully be disposed of
only by incineration, Three of the other six transformers did not contain TSCA-regulated levels
of PCBs. Whether any of the remaining three transformers contained regulated levels of PCBs
(and whether any such determination was ever made before their contents were collected for
disposal) remains in dispute. In April 1989, a disposal contractor hired to remove the transformer
fluids from the Group Eight site commingled the fluids from all seven transformers, including
the PCB Transformer, and delivered the resulting mixture of fluids to an oil recycling facility (ot
an incineration facility equipped to handle wastes containing high levels of PCBs). The oil recy-
cling facility became contaminated with PCBs, and was required to be addressed by EPA as a
Superfund site.

After those events transpired, Group Eight insisted that Wausau had been responsible for

making all of the arrangements that led to the eventual mishandling under TSCA of the trans-
former fluids. Wausau, on the other hand, insisted that it had had no significant involvement in

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736 ENVIRONMENTAL ADMINISTRATIVE DECISIONS

any of the events that culminated in the TSCA disposal violation. Region V ultimately alleged in
its complaints that Wausau, as well as Group Eight, had violated the PCB Rule's disposal require-
ments. The Region specifically alleged, among other things, that: (1) Wausau’s claims adjuster
had invited a cost estimate from the disposal contractor regarding the contractor's proposal for
removing transformer fluids from the Group Eight site; (2) Wausau’s claims adjuster had agreed
that Wausau would guarantee payment to the contractor for work done in accordance with that
proposal; and (3) Wausau did in fact pay the contractor for work that ultimately included the
unlawful disposal of PCB-contaminated fluid at an oil recycling facility.

Region V now appeals from an initial decision issued after the conclusion of a consoli-
dated evidentiary hearing into the Region’s TSCA claims against both Wausau and Group Eight.
In the initial decision, the ALJ ordered the dismissal with prejudice of Region V's Amended
Complaint against Wausau, concluding that the Region had failed to establish Wausau’s liability
for disposal of PCBs in a manner that violated TSCA section 15 or the PCB disposal regulations.
The ALJ concluded, on the other hand, that Group Eight had violated the PCB Rule's disposal
Provisions as well as the storage and marking requirements cited above, and that a civil penal-
ty would therefore be assessed against Group Eight pursuant to TSCA section 16,

In assessing a civil penalty against Group Eight, the ALJ declined to adopt Region V's rec-
ommendation that the amount of the penalty be fixed at $76,000. The Region had attempted to
support that figure by showing that it was derived in accordance with the analytical framework
in EPA's Polychlorinated Biphenyls Penalty Policy (Penalty Policy”), which describes a method
for translating the TSCA § 16(aX2XB) penalty assessment criteria into numerical terms. The ALJ
concluded, however, that proof of the recommended penalty’s consistency with the Penalty
Policy contributed nothing to a determination of whether the recommended penalty was an
“appropriate” one — an issue on which the burden of proof belonged to the Region pursuant
to 40 C.F.R. § 22.24 He reached that conclusion because the Penalty Policy does not enjoy the
status of a “rule” promulgated in accordance with Administrative Procedure Act requirements
and was therefore, the ALJ believed, required to be disregarded as if it “never existed.” After
concluding for those reasons that the Region’s penalty recommendation was inadequately sup-
ported, the ALJ performed his own analysis of the penalty criteria described in TSCA §
16(@2B) and, based on that analysis, calculated that a $58,000 penalty should be assessed
against Group Eight.

On appeal, Region V argues that the ALJ erred when he determined that Wausau was not
shown to have committed any TSCA violations. The Region also argues, with respect to Group
Fight, that the ALJ erred when he rejected the Region's $76,000 penalty recommendation based
on a perceived failure of proof.

Held: 1. The ALJ's initial decision with respect to Wausau is affirmed. Region V failed to
satisfy its burden of proving that Wausau engaged in conduct that constitutes improper PCB dis-
posal within the meaning of 40 C.F.R. Part 761, Subpart D. Wausau’s liability must be analyzed
in terms of its conduct, not its status as an insurance carrier, and nothing in the record clearly
establishes that such conduct violated the applicable TSCA regulations. (Nothing in this opinion
addresses any principles of liability under Superfund.)

2. The ALJ's initial decision with respect to Group Eight is vacated insofar as it concludes
   that the Region failed to demonstrate the “appropriateness” of its proposed $76,000 civil penal-
   ty. More particularly, the ALJ erred when he concluded that it was impermissible for the Region,
   in making such a demonstration, to rely on proof of its adherence to the PCB Penalty Policy
   without also introducing evidence to substantiate the “findings, assumptions and determina-
   tions” underlying the Penalty Policy itself.

(a) Nothing in TSCA § 16 required Region V to present the evidence that the ALJ's ini-
tial decision deems necessary. Section 16 requires that EPA “take into account” certain enumer-
ated factors when assessing a civil penalty under TSCA. In the PCB Penalty Policy, each of those
factors is addressed and analyzed, with specific reference to the manner in which they might

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EMPLOYERS INSURANCE OF WAUSAU 737
AND GROUP EIGHT TECHNOLOGY, INC.

apply to the kinds of activities that are regulated under the PCB Rule. The Region acted per-
missibly by offering to show its reliance on the Penalty Policy in order to establish, thereby, that
the penalty it was recommending had indeed taken each of the statutorily prescribed factors
“into account.”

(b) Nothing in EPA’s own regulations required Region V to present the evidence that
the initial decision deems necessary. The Region was required, pursuant to 40 C.F.R. § 22.24, to
bear the burden of proving that the penalty it had proposed to the ALJ was an “appropriate”
one. Part 22 nowhere suggests, however, that that burden ordinarily includes, as a matter of
course, a requirement for the Region to introduce evidence to support each and every factual
proposition that is either recited in, or implicit in or underlying, any penalty policy on which
the Region may have relied in developing the proposed penalty. Rather, as the Board stated in
In re New Waterbury, Ltd. 5 E.A.D. 529 (EAB 1994), the complainant must come forward with
evidence to show that it, in fact, considered each of the statutory factors and that its recom-
mended penalty is supported by its analysis of those factors.

When an ALJ considers the question of a proposed penalty’s “appropriateness,” in a case
in which the complainant has relied on a penalty policy in developing its proposal, the ALJ is
not under a legal obligation to impose the complainant's recommended penalty even if the rec-
ommended penalty takes all of the required statutory factors into account. The ALJ may also
conclude that he or she cannot adequately evaluate the proposed penalty’s appropriateness
without receiving additional argument or evidence. Also, the ALJ may confront a situation in
which a respondent genuinely takes issue with the contents of a penalty policy cited by the
complainant in support of a proposed penalty. The ALJ is free to demand from the complainant
such additional argument or evidence as the ALJ may deem necessary for an informed decision
as to the proposed penalty’s appropriateness. That does not, however, describe what occurred
in this case. Here, neither of the respondents challenged Region V's penalty proposal or any-
thing in the PCB Penalty Policy; and the ALJ, for his own part, never put Region V on notice
that it would be expected to present argument or evidence justifying the underlying assump-
tions of the Penalty Policy.

(c) Nothing in the Administrative Procedure Act or principles derived from it required
Region V to present the evidence that the initial decision deems necessary. APA principles pro-
hibit the unquestioning application of a penalty policy as if the policy were a rule with “bind-
ing effect.” Because the validity of the PCB Penalty Policy's application to the facts of this case
was never put at issue prior to the initial decision, there is no indication in the record that
Region V intended to apply the PCB Penalty Policy in such an inflexible manner as to suggest
that it was treating the policy as a rule. Moreover, contrary to the view expressed by the ALJ,
the APA does not require that a penalty policy which has not been adopted as a rule must be
disregarded for all purposes as if it "never existed.”

For these reasons, the action against Group Eight is remanded for further penalty assess-
ment proceedings consistent with the Board's opinion.

Before Environmental Appeals Judges Ronald L. McCallum,
Edward E. Reich and Kathie A. Stein.

Opinion of the Board by Judge Reich:

The U.S. Environmental Protection Agency, Region V, brought
administrative enforcement actions against Employers Insurance of
Wausau (“Wausau”) and Group Eight Technology, Inc. (“Group Eight”),
alleging violations of the Polychlorinated Biphenyls Manufacturing,
Processing, Distribution in Commerce, and Use Prohibitions here-

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738 ENVIRONMENTAL ADMINISTRATIVE DECISIONS

inafter “PCB Rule”), 40 C.F.R. Part 761, promulgated pursuant to sec-
tion 6(e) of the Toxic Substances Control Act (“TSCA”), 15 U.S.C. §
2605(e).! The two enforcement actions were consolidated, and a hear-
ing was held on October 12 and 13, 1993, before then Chief EPA
Administrative Law Judge Jon G. Lotis (“ALJ”). The ALJ issued an ini-
tial decision dated September 29, 1995, concluding that (1) Region V
failed to establish, by a preponderance of the evidence, that Wausau
had violated the PCB Rule as alleged in the Region’s Amended
Complaint, but (2) the Region did establish Group Eight’s liability for
certain of the violations with which it was charged. The ALJ directed
that the Amended Complaint issued to Wausau be dismissed with prej-
udice, and that Group Eight be assessed a penalty in the amount of
$58,000.

Region V has appealed the ALJ’s decision with respect to both
respondents.” In its appeal, the Region contends that the ALJ erred by
concluding that the Region failed to prove its claim against Wausau,
and by reducing the penalty proposed to be assessed against Group
Fight. For the reasons that follow, we affirm the initial decision with
respect to Wausau, but we vacate the initial decision in part and
remand for further proceedings with respect to the assessment of a
penalty against Group Eight.

I. BACKGROUND

On August 24, 1987, fire destroyed a building in Wyandotte,
Michigan, that had recently been purchased by Group Eight. Group
Eight was insured against certain fire losses at the site under a policy
issued by Wausau, and Group Eight sought coverage under the poli-
cy. As part of its initial response to Group Eight’s claim, Wausau
arranged with a pollution control company for removal of three trans-
formers from the site for disposal. More specifically, on September 1,

' Section 15 of TSCA, 15 U.S.C. § 2614, makes it unlawful for “any person” to fail or refuse
to comply with any EPA regulation governing PCBs. TSCA section 16, 15 U.S.C. § 2615, autho-
tizes EPA to assess civil penalties for such violations administratively in an amount not to exceed
$25,000 for each such violation.

? With its response to the Region's appeal, Wausau also filed what it termed a “protective
cross-appeal” to preserve, in the event of a decision to reinstate the Region's complaint against
Wausau, challenges to certain subsidiary rulings made by the ALJ. Because we do not reinstate
the complaint against Wausau, we do not reach any of the issues raised in Wausau's “protective
cross-appeal.”

In addition, Group Eight filed an appeal challenging the ALJ's conclusion that Group Eight
had violated the PCB Rule. Group Eight’s appeal was untimely, however, and was dismissed by
the Board on that basis by order dated November 28, 1995.

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EMPLOYERS INSURANCE OF WAUSAU 739
AND GROUP EIGHT TECHNOLOGY, INC.

1987, a letter from Wausau’s outside counsel was hand-delivered to
Group Eight’s president, Bernard S. Schrott, informing Schrott that it
would be “necessary to undertake removal of three electric trans-
formers” from the site, and that Wausau, while reserving any determi-
nation regarding coverage, “hald] made arrangements, on [Group
Eight’s] behalf, to have a certified pollution control company under-
take the proper disposal of these items.” On the same day, at
Wausau’s request, Schrott executed a document stating, in part, “[t]his
will authorize Wausau Insurance Companies to have Marine Pollution
Control remove the transformer, transport and dispose of the three (3)
P.C.B’s.” In reality, there were seven transformers at the Group Eight
site when the fire occurred, although Wausau may not have been
aware of the other four at the time of its September 1 letter to Schrott.*

As envisioned in Wausau’s September 1 letter, three transformers
were removed from the Group Eight site on or about September 3,
1987. The three transformers were not disposed of, however. Rather,
the transformers were taken by Wausau's contractor, Marine Pollution
Control, to its own storage facility, and samples of the transformer flu-
ids were forwarded to a testing laboratory on September 4, 1987.
Complainant's Trial Exhibit (‘CTE’) No. 23. The testing laboratory,
Environmental Quality Laboratories, Inc., analyzed the samples and
concluded, on September 9, 1987, that none of the three transformers
contained regulated levels of PCBs. Id. On September 10, Marine
Pollution Control, which had brought the transformers to its facility
under a hazardous waste manifest, notified the Michigan Department
of Natural Resources (“MDNR”) that the transformer fluids were non-
hazardous and that the manifest should therefore be canceled. Id.
Finally, on or about October 6, 1987, the three transformers were sim-
ply returned to the Group Eight site. CTE No. 243

• As with many of the factual matters in this case, the administrative record is not clear as
  to when Wausau first became aware of the other four transformers. The first occasion on which
  the record unmistakably shows Wausau to have become aware of them is upon its receipt of a
  December 15, 1987 letter from the demolition contractor at the Group Eight site, Alfonzo
  Sclafani. Sclafani’s letter is quoted at length later in this section of our opinion.

*’ Wausau contends that six (rather than three) transformers were sampled for PCBs in
September 1987. Wausau asserts that in addition to the three transformers removed from the site
and tested, three others were tested at the site (but not removed). Wausau further contends that
test results for all six transformers showed PCB concentrations below regulated levels. Wausau
notes that six sample analysis sheets were prepared by Environmental Quality Laboratories, Inc.,
identifying the samples tested as “Oil #1,” “Oil #2,” “Oil #3," “Oil #4," “Oil #5," and “Oil #6.” But
as Region V points out, the sample analysis sheets nowhere indicate that each sample came from
a different transformer; and indeed, when Marine Pollution Control forwarded those analysis
sheets to the MDNR, it described all six samples as having been taken from a group of only

Continued

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740 ENVIRONMENTAL ADMINISTRATIVE DECISIONS

Meanwhile, during September 1987, Group Eight acceded to a
request from the City of Wyandotte by agreeing to have the damaged
building demolished. See Wausau Trial Exhibit (“WTE”) No. 3. Ina let-
ter to Group Eight dated November 1, 1987, a company called Sclafani
Trucking, Inc. proposed to do the demolition work for a price of
$120,000.00, specifying, however, that “{tlhis price does not include
handling of any hazardous waste or removal of any asbestos.” By let-
ter dated November 13, 1987, the Wausau general adjuster assigned to
the Group Eight claim, Howard T. Aidenbaum, guaranteed payment to
Sclafani Trucking for the services identified in Sclafani Trucking’s
November 1 proposal, in an amount not to exceed the quoted price
of $120,000.00. Aidenbaum further agreed that “[ylour exclusions for
handling any hazardous waste or removal of asbestos in the quoted
price [are] acceptable.”°

On December 1, 1987, Schrott sent a brief letter to Sclafani
Trucking. CTE No, 23; WTE No. 7. To that letter he attached a copy
of the MDNR manifest that had been prepared on September 3, 1987,
in connection with the removal of three transformers from the Group
Eight site for PCB testing. He may also have attached some of the
sample analysis sheets showing the results of the testing that was per-
formed by Environmental Quality Laboratories during September,
although that is uncertain. See Hearing Transcript at 162-63, 230-31. In

three transformers (Serial Nos. R20557, R26697, and R20554). CTE No, 23. Moreover, the demo-
lition contractor for the site, writing during December 1987 in reference to these test results, stat-
ed that only three transformers “have been tested negative for PCB's,” whereas the other four
transformers had yet to be tested and therefore “currently have no disposal status.” CTE No. 6.

That dispute has legal significance because untested transformers are required to be han-
dled just as if they were known to be “PCB-contaminated.” See 40 C.F.R. § 761.3 “Oil-fitled clec-
tical equipment * * * whose PCB concentration is unknown must be assumed to be PCB-
Contaminated Electrical Equipment."). The number of transformers that were left untested in
September 1987 — one or four — therefore affects whether one penalty or four penalties could
have been sought in this action for each storage or disposal requirement allegedly violated,
However, because Region V has never Proposed to assess multiple penalties (1e.. a penalty for
h transformer) for any of the storage or disposal violations alleged in this action, it is unnec-
essary, for purposes of this appeal, to decide how many transformers were actually tested in
September 198? and how many were left untested.

• There are conflicting versions in the record of how Sclafani Trucking came to be hired
  for this job. Aidenbaum states, in an affidavit, that it was Schrott (i.e, Group Eight) who “solicit-
  ed a bid from * * * Sclafani Trucking, Inc. * * * for the performance of this demolition work.”
  December 19, 1989 Affidavit of Howard Aidenbaum (CTE No. 1), at 6. Aidenbaum further
  states that Aidenbaum himself (and, by clear implication, Wausau) had had no prior relationship
  or even contact with Sclafani Trucking or with its principal, Alfonzo Sclafani. Id. Schrott, on the
  other hand, testified that Group Eight would have preferred to use a different demolition con-
  tractor but was overruled by Wausau. Schrott states that it was Aidenbaum, on behalf of Wausau,
  who insisted that Sclafani Trucking be hired for the job. Hearing Transcript at 172.

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EMPLOYERS INSURANCE OF WAUSAU 741
AND GROUP EIGHT TECHNOLOGY, INC.

his letter, Schrott stated that the enclosed “DNR report on the trans-
formers * * * indicatles] that no PCB chemicals are present; therefore,
you can dispose of them as you wish.”

On December 15, 1987, Alfonzo Sclafani wrote to Aidenbaum,
reporting that several of the transformers at the Group Eight site had
not yet been tested and requesting instructions concerning the dispo-
sition of those transformers:

Dear Mr. Aidenbaum:

It has come to my attention that there are four trans-
formers located at 2246 Third St. Wyandotte, MI, which
you have contracted my company to demolish, that
currently have no disposal status. Three are located in
the elevator shaft tower, and one is located on the
Cedar St. side of the building. There also are three
transformers located on the ground in the courtyard
that have been tested negative for PCB's. I will arrange
disposal for these three transformers, however the haz-
ardous waste status for the remaining four transform-
ers must be determined. As you know our agreement
excludes handling of any hazardous wastes.

If you would like, I can arrange to have these trans-
formers tested and if they test positive, arrange to have
them disposed of in a law full [sic] manner. This ser-
vice would be above and beyond the prices quoted in
our agreement, and would be billed to you when com-
pleted with net payable in thirty days.

Please respond in writing as soon as possible, so
demolition work is not halted. * * * P.S. | am sending
copies of hazardous waste report regarding the three
transformers in the courtyard that I will dispose of.

No written response to Mr. Sclafani’s December 15, 1987 letter
(from Aidenbaum or anyone else at Wausau) appears in the record of
these proceedings. Moreover, for reasons that are also not clear from
the record, it appears that no further action was taken by any inter-
ested party in relation to the seven transformers at the Group Eight
site throughout 1988.

Finally, in January 1989, the City of Wyandotte contacted the
MDNR to express concern about “the presence of abandoned leaking

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742 ENVIRONMENTAL ADMINISTRATIVE DECISIONS

transformers and other chemicals discovered on the [Group Eight]
site.” A PCB compliance inspection was conducted by MDNR on
January 11, 1989, at which time the inspector observed “seven liquid
filled transformers sitting on the ground of the property.” The inspec-
tor's report identifies the seven transformers as follows:

(1) Westinghouse Serial No. 6542983; Liquid: Oil.
(2) Westinghouse Serial No. 6542891, Liquid: Oil.
(3) Westinghouse Serial No. 6542892; Liquid: Oil.
(4) ST Transformer Serial No. R20552; Liquid: Oil.
(5) ST Transformer Serial No. R26697; Liquid: Oil.
(6) ST Transformer Serial No, R20554; Liquid: Oil.

(7) Niagara Transformer Serial No. 39233; Liquid:
Askeral.

“Askeral” (or “askerel,” as the word appears in the ALJ's initial deci-
sion) is a trade name identifying transformer fluid that contains very
high concentrations of PCBs.’ It is undisputed that the Niagara trans-
former found at the Group Eight site was, for TSCA regulatory pur-
poses, a “PCB Transformer” the contents of which could lawfully be
disposed of only by incineration.*

Shortly thereafter, on February 8, 1989, a meeting took place that
was attended by Alfonzo Sclafani of Sclafani Trucking, Mr.

° MDNR Exhibit No. 1, at 1. This exhibit is the report prepared by the MDNR on the basis
of its January 11, 1989 PCB compliance inspection at the Group Eight site. Although identified
in the hearing record as “MDNR Exhibit No. 1,” the report was offered into evidence by Wausau.
See Hearing Transcript at 117. The MDNR itself has not been a party to these enforcement pro-
ceedings.

• According to the ALJ, it was sufficiently established at the hearing that “Askerel’ is an
  industry term for diclectric fluid containing concentrated levels of PCBs." Initial Decision at 9.
  No party to this action has disputed “that the Niagara transformer contained regulated levels of
  PCBs." Id. See also In re Bell & Howell Co., 1 E.A.D, 811, 821 (QO 1983) (noting that Askerel is a
  “common tradenamel] for PCB dielectric fluid”).

“For purposes of the PCB Rule, a “PCB Transformer” is defined as “any transformer that
contains 500 ppm PCB or greater.” 40 C.F.R. § 761.3. The Subpart D disposal regulations provide
that, subject to exceptions not here relevant, “PCBs at concentrations of 50 ppm or greater must
be disposed of in an incinerator which complies with § 761.70." 40 C.F.R. § 761.60(a)1).

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EMPLOYERS INSURANCE OF WAUSAU 743
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Aidenbaum of Wausau, and Michael Van Hook of K&D
Environmental Services, Inc. (“K&D”). According to Mr. Aidenbaum’s
affidavit, at the February 8 meeting he “requested that Mr. Van Hook
provide me with cost estimates for the removal, transport and dis-
posal or treatment of the transformer fluids from the transformers at
the Group Eight property.”? Following that meeting, K&D submitted
a proposal to Sclafani Trucking dated February 21, 1989 (with copies
also furnished to Aidenbaum and to Group Eight) setting forth,
among other items, K&D’s proposed “prices for pumping out 6 trans-
formers * * * and disposal cost at your Group Eight Technology job
site.” The reference to six, rather than seven, transformers — which
appears twice in K&D’s February 21, 1989 proposal — is nowhere
explained in the record of these proceedings. In any event, with
respect to the disposal of transformer fluids and other “oil waste,”
K&D proposed to charge twenty-five cents per gallon for disposal in
the following manner:

The oil waste will be broken down into two loads.
One for transformers and one for the press pits, this is
because the transformers have a low trace of PCB's
and we don’t want to contaminate the press pit oils. All
oil will be taken to CIW Company 39209 Ecorse Road,
Romulus, Michigan * * *.

The basis for K&D’s understanding that six of the transformers at the
Group Eight site had only “a low trace of PCB’s” is, once again,
nowhere explained in the record of these proceedings.

On or about March 13, 1989, a scientist with EPA Region V, Robert
Bonace, telephoned Group Eight’s president, Schrott, to express
“some concerns about transformers on his property including a PCB

° Aidenbaum Aff. J 11. It is not clear how K&D came to be involved in these discussions,
nor is it clear how (or by whom) K&D was determined to be an appropriate candidate for the
job of transporting and disposing of waste fluids from the Group Eight site. According to
Aidenbaum's affidavit, K&D’s field supervisor, Van Hook, was Alfonzo Sclafani’s neighbor —
suggesting, implicitly, that K&D was recommended for this job by Sclafani Trucking — but
Aidenbaum does not indicate the basis for his understanding that there was a preexisting rela-
tionship between Sclafani Trucking and K&D. Aidenbaum insists, at all events, that he (and, by
clear implication, Wausau) had had no prior relationship or even contact with K&D or with Van
Hook. The record contains no further information about K&D, except that: (1) K&D identified
itself to EPA and MDNR, in correspondence generated by its attorneys after the events at issue
in this action, as “a licensed transporter” (MDNR Exhibit No. 3, Attachment 4), and Q)
Aidenbaum at one point assured EPA that K&D was considered to be an “acceptable” waste dis-
posal contractor by the MDNR (CTE No. 19).

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744 ENVIRONMENTAL ADMINISTRATIVE DECISIONS

transformer.”" At Schrott’s request, Bonace prepared a letter regard-
ing the transformers that had been observed at the Group Eight site.
Bonace’s letter, addressed to Group Eight on March 20, 1989 (CTE No.
14), stated as follows:

As you requested in our telephone conversation on
March 13, 1989, I am writing to inform you of trans-
formers located on your property at 2246 3rd Street,
Wyandotte, Michigan.

One of these transformers is a PCB transformer. The
other six are mineral oil transformers. Several of the
mineral oil transformers, considered to be PCB conta-
minated under 40 C.F.R. §761.3, are leaking oil onto the
ground. Please be informed that use, storage, marking,
recordkeeping, and disposal of PCBs are regulated
under 40 C.F.R. Part 761 of the PCB regulations.
Violations of the PCB regulations can result in penal-
ties of up to $25,000 per day per violation.

Please keep me informed of any action you take
involving these transformers. If you have any ques-
tions, feel free to call me * * *.

Schrott forwarded Bonace’s letter to a Wausau representative in
Southfield, Michigan (with a copy to Aidenbaum), explaining in a
cover note that “[tlhe adjuster was supposed to resolve this but has
not.” Group Eight Trial Exhibit No. 1. In a letter to Bonace dated April
10, 1989, Aidenbaum responded to Bonace’s March 20 letter by stat-
ing, in relevant part:

Mr. Bonace, I have now received a copy of your March
20 letter to our insured president, Bernard Schrott.

We have requested and currently received an MID
package, which is being completed by the insured so
that an MID number can be assigned by the State of

” Hearing Transcript at 347. Bonace had previously been contacted in reference to that
8 pl P 'y

subject by the City of Wyandotte’s City Engineer — who was present during the MDNR’s January
11, 1989 PCB compliance inspection conducted at the Group Eight site — and Bonace had con-
firmed, in a telephone conversation with the MDNR inspector, that “when [the inspector] was at
the site he saw an Askerel PCB transformer and six other oil filled transformers, several lof
which] appeared to be leaking oil onto the ground.” Id. at 348,

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Michigan and therefore proceed with the process of
having this hazardous waste removed.

Samples are being taken by K and D Industrial
Services, Incorporated, who was indicated to be an
acceptable contractor by Anthony Pitts of the DNR.

CTE No. 19.1!

Meanwhile, according to Aidenbaum, he had met for a second
time with Alfonzo Sclafani of Sclafani Trucking and Michael Van Hook
of K&D on April 5, 1989. “At that meeting,” Aidenbaum states, “I
agreed to pay a reasonable dollar amount to K&D for the removal,
transport and disposal or treatment of the transformer fluids as esti-
mated by K&D in its February 21, 1989 proposal.”"?

K&D’s proposal, it will be recalled, indicated that K&D would
“pump out 6 transformers” and transport their contents to the CIW
Company's facility in Romulus, Michigan — although there were, in
reality, seven transformers at the Group Eight site. Moreover, the CIW
Company’s facility was an oil recycling facility, and as such was not a
proper facility for disposal of transformer fluids that either (a) con-
tained PCB concentrations in excess of 50 parts per million (see supra
note 8), or (b) were untested and therefore presumed to contain such
concentrations as a matter of law (see supra note 4). In any event, on
or about April 15, 1989, K&D drained the fluids from all seven of the
transformers at the Group Eight site — including the Niagara “asker-
el” transformer — commingled the fluids and delivered them all to the
CIW facility. Wausau, on behalf of its insured, paid the bill submitted
by K&D for performance of those services in accordance with its prior
agreement. The CIW facility became contaminated by PCBs and was
ultimately required to be cleaned up under the auspices of the feder-
al Superfund program."

" The “MID” number mentioned in this letter is presumably the identification number
required to be obtained by a Michigan generator of hazardous waste pursuant to the Resource
Conservation and Recovery Act.

"2 Aidenbaum Aff. J 13.

‘3 The case before us presents no issue relating to the responsibility of any person for the
contamination of the CIW site, under the liability provisions of the Superfund statute (the
Comprehensive Environmental Response, Compensation, and Liability Act of 1980, as amended,
42 U.S.C. §§ 9601 ef seg. ("CERCLA") or otherwise, nor does it present any other issue under
CERCLA. We are aware, however, of previous litigation between Wausau and EPA wherein

Continued

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746 ENVIRONMENTAL ADMINISTRATIVE DECISIONS

Region V learned of the contamination of the CIW site, and of its
origin in the improper disposal of transformer fluids from the Group
Eight site, during May 1989. On or about May 22, 1990, Region V
issued a TSCA administrative complaint against Group Eight in six
counts, seeking penalties totaling $76,000, and a separate TSCA
administrative complaint against Wausau in one count, seeking a
penalty of $25,000. Amended complaints were filed in both actions,
with leave of Administrative Law Judge Thomas B. Yost, during
August 1991. Following Judge Yost’s retirement in September 1992,
the TSCA penalty actions against Wausau and Group Eight were reas-
signed to then Chief Administrative Law Judge Jon G. Lotis. Judge
Lotis formally consolidated the two actions by order dated July 30,
1993, presided at a consolidated hearing during October 1993, and
issued his initial decision on September 29, 1995,

Il. DISCUSSION
A. The Claim Against Wausau (Case No. TSCA-V-C-62-90}

Region V's TSCA civil penalty action against Wausau alleges that
Wausau, by its involvement in the unlawful disposal of PCB-contami-
nated fluids from the Group Eight site, violated the PCB disposal reg-
ulations at 40 C.F.R. Part 761, Subpart D. The ALJ concluded, howev-
er, that Region V failed to prove that Wausau had become actively
involved in the disposal of PCBs or had otherwise deviated from the
usual role of an insurance carrier in adjusting a potentially covered
loss, We agree that the evidence introduced before the ALJ was insuf-
ficient to support the imposition of a TSCA penalty against Wausau for
unlawful disposal of PCBs, and we therefore affirm the initial decision
as it relates to Wausau.

We emphasize at the outset that both the Region and Wausau
agree — indeed, they both insist — that the Region’s claim against
Wausau must be analyzed in terms of Wausau’s conduct, not its sta-
tus. Specifically, the Region urges that we impose a TSCA penalty
against Wausau “not because of its status as an insurance carrier, but

Wausau claimed reimbursement, pursuant to. section 106(b)(2) of CERCLA, 42 U.S.C. §
9606(b)(2), of costs that Wausau incurred while addressing the contamination of the CIW site in
response to an EPA order. Wausau's reimbursement claim was denied by EPA, and that denial
was ultimately upheld by the Court of Appeals for the Seventh Circuit, for reasons not directly
related to Wausau's CERCLA liability or nonliability with respect to the CIW site. See Employers
Insurance of Wausau v. Browner, 52 F.3d 656 (7th Cir. 1995), cert. denied, 116 §. Ct. 699 (1996).
The court made no factual findings as to the extent of Wausau's involvement in sending the
transformer fluids to the CIW facility, Wausau's inability to obtain reimbursement of its CERCLA
response costs in that litigation has no bearing on the TSCA issues that are currently before us.

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rather because of what Wausau did.” Appellant’s Brief at 18. Wausau
embraces the same distinction and maintains that the imposition of a
penalty against it on the basis of status, as opposed to “specific acts,”
would represent an “improper, unlawful extension of TSCA.”
Wausau’s Brief at 36. By the same token, neither party suggests that
the imposition of a TSCA penalty against Wausau, given proof of
violative conduct, would be impermissible merely because Wausau is
in the insurance business rather than the waste disposal business.'*
Accordingly, with the parties in agreement that Wausau’s conduct is
what matters (a proposition with which we, too, agree), our inquiry
focuses on the actions taken by Wausau in connection with the
removal of the transformer fluids from the Group Eight site.

The underlying statutory provision, TSCA section 6(e)(1), 15
U.S.C. § 2605(e)(1), simply directs EPA to “promulgate rules to * * *
prescribe methods for the disposal of polychlorinated biphenyls.”
TSCA itself does not define “disposal,” nor does it otherwise identify
the class or classes of persons against whom the Agency’s PCB dis-
posal rules were to be made enforceable. The Region therefore relies,
for its analysis of what constitutes potentially violative conduct, on the
definition of “disposal” that appears in 40 C.F.R. § 761.3:

Disposal means intentionally or accidentally to discard,
throw away, or otherwise complete or terminate the
useful life of PCBs and PCB Items. Disposal includes
spills, leaks, and other uncontrolled discharges of
PCBs as well as actions related to containing, trans-
porting, destroying, degrading, decontaminating, or
confining PCBs and PCB Items.

That definitional provision represents the linchpin of the Region’s
appeal. The Region argues that by facilitating the retention of K&D
Environmental Services to dispose of transformer fluids from the
Group Eight site — that is, by inviting a cost estimate from K&D for
disposal of the transformer fluids, agreeing to pay K&D for the dis-
posal in accordance with that estimate, and ultimately paying K&D for
the work that it did — Wausau took “actions related to containing,
transporting, destroying, degrading, decontaminating, or confining

4 Region V expresses some concern that the ALJ’s initial decision implies that insurance
carriers are “exempt” from TSCA requirements or prohibitions “that apply to everyone else.”
Appellant's Brief at 20. We think that concern is unfounded. We do not read the initial decision
as recognizing such an exemption, nor should anything in our own opinion be construed as
endorsing such an exemption

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748 ENVIRONMENTAL ADMINISTRATIVE DECISIONS

PCBs,” and therefore engaged in PCB “disposal” within the meaning
of the Part 761 regulations. We do not agree.

It is true, as the Region emphasizes, that the regulatory definition
of “disposal” is extraordinarily broad. However, complicating the
analysis is the fact that while section 761.3 defines “disposal,” the reg-
ulations do not explicitly assign responsibility for TSCA compliance to
any particular participants in the disposal process.'> “The disposal
requirements are written in the passive voice, stating bow PCBs must
be disposed of, but not saying who is responsible for an improper dis-
posal of PCBs.” In re City of Detroit, 3 E.A.D. 514, 522 (CJO 1991)
(emphasis in original).

For that reason, we do not share the Region’s apparent convic-
tion that Wausau's responsibility for TSCA compliance in this case fol-
lows from a straightforward application of clear regulatory language.
The regulatory language sweeps broadly, but there must be some rea-
sonable basis for applying the disposal regulations to the conduct that
the Region seeks to penalize. It is clearly not sufficient for the Region
simply to recite that the respondent performed an “action related to”
taking PCBs out of service. If any “action related to” PCB disposal
were truly a sufficient predicate for the imposition of TSCA liability,
the City of Wyandotte itself would arguably be subject to a TSCA
penalty in this case for its “action” of encouraging the removal of the
transformers from the Group Eight site — a result that presumably no
one would consider appropriate.

Recognizing the ambiguity as to the reach of the PCB disposal
regulations, the Agency’s Chief Judicial Officer @CJO”) in City of
Detroit, supra, limited the scope of TSCA penalty liability under those
regulations to parties having actual influence over the disposal activ-
ity (such as by direct involvement in the activity) or the ability to exert
such influence (such as would arise, for example, from ownership of
a PCB source). In City ef Detroit, an improper disposal of PCBs
occurred in the form of uncontrolled discharges (i.e., spills and leaks),
and EPA sought to assess a TSCA penalty against the entity that owned

• An introductory provision of Part 761, 40 C.F.R. § 761.1(b), states that “(this part applies
  to all persons who manufacture, process, distribute in commerce, use, Or dispose of PCBs or
  PCB Items.” But the Agency has never applied that provision literally, to mean that “all of the
  PCB rules apply to a person who engages in just one of the listed activities.” 47 re City of Detrott,
  3 E.A.D. 514, 523 1.18 (CJO 1991), Rather, “it is evident that the regulations on use apply to
  those who use PCBs; the regulations on storage apply to those who store PCBs; and the regu-
  lations on disposal apply to those who dispose of PCBs.” Id. at 523. Section 761.1¢b) is there-
  fore of limited value in deciding whether particular conduct violates particular requirements or
  prohibitions of the PCB Rule.

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the affected real property at the time those discharges were discov-
ered. The CJO concluded, however, that it would not be reasonable
to impose a penalty under Part 761, Subpart D, absent proof that the
respondent actually caused the disposal or that (in a case involving
spillage or leakage) the respondent owned the source of the PCBs at
a time when spills or leaks were occurring:

The regulatory provisions * * * suggest the following
two conclusions as to when a person will be held
responsible for an improper disposal [of PCBs]: (1) a
person will be held responsible if that person caused
(or contributed to the cause of) the disposal, and (2)
in cases involving uncontrolled discharges, the person
who owned the source of the PCBs at the time of the
discharge will be deemed in most cases to have caused
the discharge.

City of Detroit, 3 E.A.D. at 526 (emphasis in original). The landowner
in City of Detroit had not yet taken possession of the affected prop-
erty at the time of the uncontrolled PCB discharges; nor had the
landowner otherwise caused or contributed to the occurrence of those
discharges; nor did the landowner own any PCB source at the time of
an uncontrolled discharge. The CJO concluded, therefore, that no
penalty could be assessed against the landowner for violation of the
PCB disposal regulations. Id. at 531-32.'°

Guided by. the principles articulated by the CJO in City of Detroit,
we must first determine what Wausau actually did with respect to the
transformers at the Group Eight site, and we must then consider
whether Wausau’s conduct can reasonably be characterized as the
regulated activity of “disposal.” Because evidence bearing on the
more fundamental question — What did Wausau actually do? — is in
important respects either ambiguous, or in conflict, or simply lacking,
we emphasize that it is Region V that bears the burden of proving the
elements of the alleged violation by a preponderance of the evidence.

© In determining who may be subject to a penalty under TSCA in a case involving uncon-
trolled PCB discharges, the CJO asked which parties could reasonably have been expected to
minimize the risk of such uncontrolled discharges. Thus, he observed that applying the dispos-
al rules to the owner of a PCB source would make sense because the owner presumably has
“the power to control the handling of the PCBs.” City of Detroit, 3 E.A.D. at 525. Even if a spill
were caused by vandalism, the owner of the source could reasonably be subject to a disposal
penalty because “the owner would normally be responsible for maintaining security at the site
of its PCB sources.” Id. The interpretation of “disposal” adopted by the CJO in the context of
leaks and spills was therefore reasonably related to the apparent objective of the regulations.

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750 ENVIRONMENTAL ADMINISTRATIVE DECISIONS

See 40 C.F.R. § 22.24; see also In re Santacroce, 4 E.A.D. 586, 595 (EAB
1993) (noting the heightened significance of the complainant's burden
of proof in cases “where, as here, the evidence is scant, contradicto-
ry, and subject to varying interpretations”).

Chronologically and, we think, analytically, Wausau’s actions
appear to form two relatively discrete episodes: The first consists of
actions taken during 1987, shortly after Wausau received notice of the
Group Eight fire loss, and the second consists of actions taken during
1989, after the MDNR’s January 11 PCB compliance inspection. Having
examined both sequences of conduct in light of the applicable bur-
den of proof, we conclude that neither set of actions undertaken by
Wausau will support the imposition of a TSCA penalty for improper
disposal of PCBs.

During September 1987, in the immediate aftermath of the fire,
Wausau decided that three transformers would have to be removed
from the Group Eight site for disposal. Wausau told its insured, in a
hand-delivered letter from Wausau’s outside counsel, that the planned
disposal was “necessary * * * in order to protect the public and the
environment from the possibility that the contents of the transformers
might be released.” Although Wausau took care to obtain the insured’s
written authorization, we think it clear that the decision to undertake
the disposal was Wausau’s decision, not the insured’s: The disposal
was presented to the insured as a “necessary” undertaking, and
Wausau apparently engaged a pollution control company of its own
choosing to do the job, By making and implementing decisions of that
nature, Wausau may well have at least approached the threshold of
engaging in TSCA-regulated conduct, if not crossed it. We need not
decide whether the threshold was crossed, however, because no
improper disposal of PCBs actually occurred at the time of these
events. The three transformers removed from the Group Eight site at
Wausau’s direction did not contain regulated concentrations of PCBs,
and the transformers were simply tested and returned to the site.
Wausau’s involvement in the removal and testing of those three trans-
formers during September 1987 does not support the imposition of a
TSCA penalty for an improper disposal of transformer fluids that
occurred nearly two years later.

With respect to the events of early 1989, we reach the same result
for different reasons: A disposal of PCBs certainly occurred, and the
TSCA regulations were certainly violated, but Region V has not proven
that the nature and quality of Wausau’s actions were such as would
subject Wausau to the requirements and prohibitions of the TSCA PCB
disposal regulations. Nothing in this record clearly demonstrates that

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Wausau made the decision to go forward with the disposal of the
transformers, that Wausau selected K&D as the waste removal con-
tractor to do the job, or that Wausau exerted any influence over the
scope, timing, or other details of K&D’s disposal work. Mr.
Aidenbaum’s affidavit — which, we note, was admitted into evidence
by the ALJ upon the Region's motion — states only that he asked K&D
for a cost estimate, that he agreed to pay K&D for its services based
on the estimate that K&D had submitted, and that he did in fact cause
payment to be made to K&D. Aidenbaum specifically denies, more-
over, having had any prior association with K&D or any involvement
in the selection either of K&D as a disposal contractor or of the CIW
Company facility as a disposal site. With the Region relying almost
exclusively on Aidenbaum’s affidavit as evidence of Wausau’s role,”
we simply cannot conclude that Wausau did anything more at the time
of these events.

Of course, it is possible that Wausau played a more influential
role in the events of February, March, and April 1989 than it has
acknowledged. Schrott’s testimony, for example, would certainly tend
to support that view, and Aidenbaum’s April 10, 1989 letter to Bonace,
though ambiguous, could be read to support that view as well. But
the Region did not meet its burden of proof with regard to Wausau’s
role in these events, either to the satisfaction of the ALJ or to our own
satisfaction. Both before the ALJ and on appeal, the Region has cited
Aidenbaum’s affidavit as evidence that Wausau played an active deci-
sionmaking role at the Group Eight site, see Complainant’s Post-
Hearing Brief at 5; Appellant's Brief at 14, but the affidavit, as far as
the February through April 1989 period is concerned, is careful to sug-
gest just the opposite. With the Region having offered Aidenbaum’s
affidavit into evidence, having relied heavily on portions of the affi-
davit, and having failed to examine Aidenbaum (who was physically
present during the Region's case in chief) with respect to the portions
of the affidavit that minimize Wausau’s role, the record supports no
alternative to Aidenbaum’s characterization of several events that are
central to the outcome of this case. If the Region believed that
Aidenbaum’s affidavit did not fully or accurately describe Wausau’s
role, then the Region could and should have called Aidenbaum to tes-
tify at the hearing under questioning appropriate to a “hostile” witness.

7 As the Region acknowledges in its own appellate brief, “[clomplainant’s claim of
Wausau’s liability * * * is based upon documentary evidence of the events which culminated in
the alleged unlawful disposal of PCBs by Wausau, especially an affidavit of Mr. Aidenbaum, the
agent of Wausau directly involved in these events.” Appellant's Brief at 4n.2.

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752 ENVIRONMENTAL ADMINISTRATIVE DECISIONS

The Region's failure to effectively refute Aidenbaum’s account is
fatal to the claim against Wausau, because the specific conduct
described by Aidenbaum (asking for and agreeing to a cost estimate
and paying the subsequent bill) does not appear to deviate, in any
obvious respect, from the conduct one would expect of an insurance
carrier in circumstances such as these, as opposed to the conduct of
one who actually sought to influence the disposal activity itself.
Aidenbaum’s affidavit states that he was present in an essentially pas-
sive role as plans were made to dispose of Group Eight’s transformer
fluids. He insists that he made no effort to influence any of those
plans. See Aidenbaum Aff. J 11 (“At [the February 8] meeting I did not
discuss potential disposal or treatment sites for the transformer fluids
*** nor did I select a disposal or treatment site or direct that the trans-
former fluids should be removed to any particular site.”); id. J 13 (“As
I did not have the authority to control the removal, transport, dispos-
al or treatment of the transformer fluids, my only purpose at the [April
5] meeting was to reach an agreed price with K&D.”). Aidenbaum
does not, in short, portray Wausau actively engaging at the relevant
time in conduct that could, in our opinion, reasonably be character-
ized as PCB “disposal.” The Region may disagree with Aidenbaum’s
account in several respects, but the Region, which bears the burden
of proof with respect to Wausau's conduct, has not presented suffi-
cient evidence to refute that account.

The Region objects to the ALJ's finding that the removal of the
transformers was performed by K&D “pursuant to an agreement it
had reached with Sclafani.” Appellant’s Brief at 18 (citing Initial
Decision at 18). The Region argues that “there is no evidence in the
record that Sclafani ever identified to K&D the scope of the work to
be performed at the Group 8 property, that Sclafani ever offered to
pay K&D to do the work, or that Sclafani ever actually paid K&D to
do the work.” Appellant's Brief at 18. What the record does or does
not show about Sclafani’s conduct is, however, ultimately beside the
point. The pertinent question is what the record shows about
Wausau’s conduct, and the record evidence on that subject was
introduced hy the Region itself in the form of Aidenbaum’s affidavit.
That affidavit is entirely consistent with the ALJ’s conclusion that
Wausau did not, during the early part of 1989, “dispose” of PCBs
within the meaning of the TSCA regulations.

For these reasons we conclude, as did the ALJ, that Wausau did
not itself engage in PCB “disposal” within the meaning of the Part 761
regulations, either by inviting cost estimates from K&D (so as to deter-
mine the magnitude of Wausau’s own potential payment obligation),
or by agreeing to make payment to K&D for services that included

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PCB disposal, or by making such payment. We therefore affirm the
dismissal of Region V's Amended Complaint against Employers
Insurance of Wausau.

B. The Claims Against Group Eight (Case No. TSCA-V-C-66-90)

Because Group Eight did not timely appeal the ALJ’s initial deci-
sion, there is no issue before us concerning Group Eight’s liability,"*
and such liability is assumed in the discussion that follows. The issues
presented on appeal arise from the ALJ’s rejection of the Region's
$76,000 penalty proposal with regard to Group Eight, and his decision
to substitute a $58,000 penalty.

In support of its proposed penalty the Region sought to demon-
strate, in its briefs and at the hearing, that the proposed penalty had
been calculated in a manner consistent with EPA’s April 1990 Poly-
chlorinated Biphenyls Penalty Policy (‘Penalty Policy”). In his initial
decision, however, the ALJ turned aside the Region’s effort as funda-
mentally misguided. He ruled that proof of the proposed penalty’s
consistency with the Penalty Policy — even if unchallenged — could
not have justified his entry of an order assessing that penalty against
Group Eight, absent evidence in the record substantiating the various
“findings, assumptions and determinations” that are reflected in the
Penalty Policy. Initial Decision at 22.

On appeal, Region V challenges the conclusion that its failure to
substantiate the factual and legal “underpinnings” of the PCB Penalty
Policy on the record compelled the rejection of its $76,000 penalty
proposal.’? We agree with the Region. We therefore vacate the initial
decision insofar as it rejects the $76,000 penalty proposal, and we
remand for further penalty assessment proceedings with respect to
Group Eight. Our reasons follow.

1. The Region’s Penalty Recommendations

Six different kinds of PCB Rule violations were alleged to have
been committed by Group Eight, five pertaining to improper storage
and marking and the sixth pertaining to improper disposal. For each

1 See supra note 2.

! The Region also challenges the size of the penalty ($58,000) ultimately assessed by the
ALJ against Group Eight in the initial decision, arguing that that penalty amount lacks any artic-
ulated, rational relationship to the factors that the Agency is required to consider in assessing a
TSCA penalty. In light of our disposition of the Region's principal claim of error, we do not
address this alternative basis for the Region’s appeal.

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754 ENVIRONMENTAL ADMINISTRATIVE DECISIONS

regulation allegedly violated, Region V formulated a penalty recom-
mendation based on Group Eight’s conduct with respect to the 236-
gallon Niagara askerel transformer.” Thus, in its prehearing exchange,
the Region presented its penalty recommendations to the ALJ and to
Group Eight as follows:

(1) Amended Complaint Count I — Failure to dispose
of the PCB Transformer within one year of its place-
ment in storage, as required by 40 C.F.R. § 761.65(a) —
Proposed Penalty: $6000.00.

(2) Amended Complaint Count II — Storage of the
PCB Transformer in an inadequate storage facility, i.e.,
one not satisfying the criteria set forth in 40 C.F.R. §
761.65(b)(1) — Proposed Penalty: $13,000.00.

(3) Amended Complaint Count II] — Failure to date
the PCB Transformer with the date of its placement in
storage, as required by 40 C.F.R. § 761.65(c)(8) —
Proposed Penalty: $6000.00,

(4) Amended Complaint Count TV — Failure to mark
the PCB Transformer with mark M,, as required by 40
C.F.R. § 761.40(a)(2) — Proposed Penalty: $13,000.00.

(5) Amended Complaint Count V — Failure to mark
the storage area used to store the PCB Transformer
with mark M,, as required by 40 C.F.R. § 761.40(a)(10)
— Proposed Penalty: $13,000.00.

*' More precisely, the Region’s Amended Complaint alleged that Group Eight had violated
the storage and disposal requirements of the PCB Rule by its conduct with respect to both the
Niagara transformer and two of the Westinghouse wansformers — which, according to the
Region, were required to be treated as “PCB-contaminated” because their fluid contents were
never tested. Those allegations notwithstanding, however, the Region did not seek multiple
penalties for any of the violations that Group Eight allegedly committed with respect to more
than one transformer. For example, in regard to Group Eights alleged use of an inadequate stor-
age facility, the Region proposed to assess a penalty for only one violation even though three
allegedly regulated transformers were stored in the facility in question.

Because all of the Region's penalty recommendations were based solely on Group Eight's
handling of the Niagara askerel transformer — whose status as a regulated PCB Transformer is
not in dispute, see supra note 7 —~ we need not consider whether any of the Westinghouse trans-
formers were subject to regulation under Part 761. See supra note 4 (describing conflicting evi-
dence as to how many of the transformers at the Group Eight site were TSCA-regulated).

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(6) Amended Complaint Count VI — Disposal of the
fluid from the PCB Transformer in a manner not per-
mitted by 40 C.RR. § 761.60 — Proposed Penalty:
$25,000.00.

See Complainant’s Prehearing Exchange at 9-11. In total, the penalty
proposed to be assessed against Group Eight amounted to $76,000.00.

Region V made clear, before the commencement of the hearing,
that its penalty recommendations had been derived by applying the
factors listed in TSCA § 16 “to the particular allegations that constitute
the violations charged,” Amended Complaint at 10, and specifically by
applying those factors in the manner described in the Penalty Policy.
Complainant's Prehearing Exchange at 8. The Penalty Policy was
included among the exhibits identified in the Region's prehearing
exchange (see Complainant’s Prehearing Exchange at 7), and the ALJ
admitted the Penalty Policy into evidence at the hearing, without
objection by either respondent, as Complainant's Trial Exhibit number

20. Hearing Transcript at 539. At the hearing, EPA witness Robert
    Bonace testified that he had been personally involved in formulating
    Region V's penalty proposal with respect to Group Eight, and that the
    proposal had been developed in the manner described in the Penalty
    Policy. Id. at 353-73.

In his initial decision, the ALJ ruled that the Region had failed to
satisfy its burden of proof with respect to the “appropriateness” of the
proposed $76,000 penalty. He explained that when, as in this case,
the Region proposes to assess a penalty calculated in accordance with
a penalty policy, the Region “must, through its evidence, support the
findings, assumptions and determinations on which [the] policy rests.”
Initial Decision at 22. He further explained that, because Region V had
failed to substantiate the “findings, assumptions and determinations”
underlying the Penalty Policy, he could not properly consider any-
thing in that policy in reasoning toward his own penalty decision. We
conclude, however, that nothing in TSCA itself, in 40 C.F.R. Part 22, or
in the Administrative Procedure Act dictates the imposition of such an
onerous standard of proof.

2. Penalty Assessment in General

Whenever EPA seeks to assess a monetary penalty for violation of
TSCA § 15, EPA must adhere to the following statutory requirement:

In determining the amount of a civil penalty, [EPA]
shall take into account the nature, circumstances,

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extent, and gravity of the violation or violations and,
with respect to the violator, ability to pay, effect on
ability to continue to do business, any history of prior
such violations, the degree of culpability, and such
other matters as justice may require.

TSCA § 16(a)(2)(B), 15 U.S.C. § 2615(a)(2B).2" EPA procedural regu-
lations seek to ensure compliance with that requirement by providing,
among other things, that in administrative penalty proceedings “[t]he
complainant has the burden of going forward with and of proving * * *
that the proposed civil penalty * * * is appropriate.” 40 C.E.R. § 22.24.
A TSCA penalty is “appropriate,” for purposes of 40 C.F.R. § 22.24,
only if it is calculated in a manner consistent with the Agency’s oblig-
ation to “take into account” the factors enumerated in TSCA §
16(a)(2)(B). In re New Waterbury, Lid., 5 E.A.D. 529, 538 (EAB 1994)
(quoting TSCA § 16(a)(2)(B)). It is therefore incumbent upon the com-
plainant in all TSCA penalty cases, in order to establish the “appro-
Priateness” of a recommended penalty, to demonstrate how the TSCA
section 16 penalty criteria relate to the particular facts of the violations
alleged.

In New Waterbury, supra, we looked closely at the nature of the
“prima facie” penalty case that the complainant must present, in any
TSCA action, if it is to satisfy its burden of “going forward" under 40
C.F.R. § 22.24. We stated that section 22.24 requires the complainant
to “come forward with evidence to show [1] that it, in fact, considered
each factor identified in [TSCA] Section 16 and [2] that its recom-
mended penalty is supported by its analysis of those factors.” New
Waterbury, 5 E.A.D. at 538. “The depth of consideration will vary in
each case,” we explained, “but so long as each factor is touched upon
and the penalty is supported by the analysis a prima facie case
[regarding the proposed penalty’s ‘appropriateness’] can be made.” Id.

Once the Region presents a prima facie case with respect to the
appropriateness of its recommended penalty, the respondent may or
may not choose to offer evidence or argument in rebuttal.22 In this

*' The statute also provides that no penalty shail exceed $25,000 per violation, and that the
assessment of a penalty must be preceded by an opportunity for a hearing in accordance with
the Administrative Procedure Act, 5 U.S.C. § 554. TSCA §§ 16(a)(1), 16(a(2)(A). Neither of those
Statutory requirements is at issue in this case.

• Several different types of “rebuttal” can be imagined in connection with the appropri-
  ateness of a proposed TSCA penalty. For instance, a respondent might conceivably offer evi-
  dence showing that the Region completely overlooked one or more of the penalty factors that

Continued

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case we need only consider the situation in which the Region's penal-
ty case goes unrebutted, i.e., the respondent offers no evidence or
argument of its own with respect to the appropriateness of the
Region’s penalty proposal. In those circumstances, even though the
Region has done all that 40 C-FR. § 22.24 requires of it, the Presiding
Officer is (as we explain in the following discussion) nonetheless
under no obligation to assess the penalty recommended by the
Region. Rather, the Presiding Officer may do either of two things.

If the Presiding Officer agrees with the Region’s analysis of the
statutory penalty factors and their application to the particular viola-
tions at issue, the Presiding Officer may issue an initial decision
assessing the penalty recommended by the Region. The Region will
have carried its burden of proving that the proposed penalty is
“appropriate,” and the Presiding Officer, before assessing the recom-
mended penalty, will have ensured that the requisite statutory factors
were indeed “take[n] into account.” Moreover, by reviewing the
Region’s analysis of the statutory factors and independently determin-
ing that the analysis is a reasonable one and that the recommended
penalty is supported by that analysis, the Presiding Officer acts to
ensure that the Agency's penalty assessment satisfies the
Administrative Procedure Act’s “abuse of discretion” standard, 5 U.S.C.
§ 706(2), i.e., that the assessment is neither “unwarranted in law” nor
“without justification in fact.” See Butz v. Glover Livestock Commission
Co., 411 U.S. 182, 185-86 (1973).

it was required by statute to consider. Or the respondent might contend that, despite the
Region's consideration of each of the prescribed statutory factors, the proposed penalty is not
supported by the Region's analysis of those factors and is therefore not “appropriate.” See New
Waterbury, 5 E.A.D. at 538-39. Such a contention might take the form of a legal argument con-
cerning the proper interpretation of undisputed facts, or might include both a factual compo-
nent and a legal/analytical component — for example, if the respondent were to introduce evi-
dence claimed to show a lack of culpability, and were to argue that that evidence justifies a
particular reduction in the size of any penalty that the Presiding Officer might assess. In the case
before us, Group Eight presented no evidence or argument whatsoever in relation to the amount
of the penalty proposed by Region V.

23 When an administrative agency assesses a civil penalty or other sanction under authori-
ty conferred by statute, the agency's choice of a particular sanction — for example, the size of
the civil penalty — may be set aside on judicial review only if the sanction is “unwarranted in
law’ or ‘without justification in fact.” NZ Industries v. Dept of Transportation, 901 F.2d 141, 144
(D.C. Cir, 1990) (quoting Butz, 411 U.S. at 185-86); accord, Bluestone Energy Design, Inc. v.
Federal Energy Regulatory Comm'n, 74 F.3d 1288, 1294 (D.C. Cir. 1996). See also Monieson v.
Commodity Futures Trading Comm'n, 996 F.2d 852, 858 (7th Cir, 1993) (When a penalty falls
within statutory limits, we review only for an abuse of discretion, asking whether it is rational-
ly related to the offense.”).

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If, on the other hand, the Presiding Officer does not agree with
the Region’s analysis of the statutory penalty factors or their applica-
tion to the particular violations at issue, the Presiding Officer may
specify the reasons for the disagreement and assess a penalty differ-
ent from that recommended by the Region. See 40 C.F.R. § 22.27(b)
CIf the Presiding Officer decides to assess a penalty different in
amount from the penalty recommended to be assessed in the com-
plaint, the Presiding Officer shall set forth in the initial decision the
specific reasons for the increase or decrease.”). While the Presiding
Officer must consider the Region’s penalty proposal (and, as dis-
cussed below, “any civil penalty guidelines issued under the Act”), he
or she is in no way constrained by the Region’s penalty proposal,
even if that proposal is shown to have “takeln] into account” each of
the prescribed statutory factors. If the Presiding Officer chooses not to
assess complainant’s recommended penalty, even though that recom-
mended penalty may in fact have taken each prescribed factor into
account, the Presiding Officer need only explain the basis for that
choice in the initial decision. Of course, the Presiding Officer must
also ensure that the penalty he or she ultimately assesses reflects a
reasonable application of the statutory penalty criteria to the facts of
the particular violations.

It is also noteworthy that nothing in the Part 22 regulations
expressly limits or restricts what the Presiding Officer may consider in
determining whether to adopt the Region’s unrebutted penalty pro-
posal or to deviate from that proposal. As previously noted, the reg-
ulations do require the Presiding Officer to “consider any civil penal-
ty guidelines issued under the Act” (40 C.F.R. § 22.27(b)) — that is,
under the statute authorizing the institution of the enforcement action
(id. § 22.03(a)) — but they neither specifically require nor specifical-
ly preclude the Presiding Officer’s consideration of any other materi-
als. Moreover, this Board has repeatedly stated that a Presiding
Officer, having considered any applicable civil penalty guidelines
issued by the Agency, is nonetheless free not to apply them to the
case at hand. E.g., In re DIC Americas, Inc,, 6 E.A.D. 184, 189 (EAB
1995) (“[A] presiding officer has the discretion either to adopt the ratio-
nale of an applicable penalty policy where appropriate or to deviate
from it where the circumstances warrant.”) (emphasis in original); Jn
re Pacific Refining Co., 5 E.A.D. 607, 613 (EAB 1994) {While penal-
ty policies facilitate the application of statutory penalty criteria, they
serve as guidelines only and there is no mandate that they be rigidly
followed.”). The Presiding Officer’s penalty assessment decision is
ultimately constrained only by the statutory penalty criteria and by
any statutory cap limiting the size of the assessable penalty, by the
Agency’s regulatory requirement (40 C.F.R. § 22.27(b)) to provide

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“specific reasons” for rejecting the complainant’s penalty proposal,
and by the general Administrative Procedure Act requirement that a
sanction be rationally related to the offense committed (i.e., that the
choice of a sanction not be an “abuse of discretion” or otherwise arbi-
trary and capricious).

3. Use of a Penalty Policy

Among the principles we have just surveyed, there is nothing that
would have required Region V to substantiate the “underpinnings” of
the PCB Penalty Policy as a matter of course, as a necessary element
of its prima facie case against Group Eight. We recognize, however,
that the ALJ had the discretion to demand additional argument or evi-
dence to support the Penalty Policy’s interpretation and analysis of
TSCA § 16, given that the Region was urging him to assess a penalty
based on that policy. In other words, the ALJ was under no obligation
to accept the factual assertions or legal interpretations in the Penalty
Policy at face value, because — as the ALJ repeatedly emphasized in
his decision — the Penalty Policy has never been subjected to the rule
making procedures of the Administrative Procedure Act, and thus
does not carry the force of law. Indeed, for that reason the ALJ could
simply have considered the Penalty Policy's analytical framework and
concluded that, in this particular case, application of the TSCA § 16
criteria in the manner suggested by the Penalty Policy did not yield
an “appropriate” penalty. The ALJ could likewise have rejected an
“appropriate” penalty generated in accordance with the Penalty
Policy, in favor of another “appropriate” penalty better suited to the
circumstances of this particular case. See In re Rybond, Inc., 6 EAD.
614, 639 (EAB 1996) (“Under the circumstances of a given violation,
reduction of a penalty assessment may be appropriate even if the
penalty has been properly calculated in accordance with [an applica-
ble] Penalty Policy.”).

But the ALJ did none of those things. He rejected the Region’s
penalty recommendation based on a perceived failure of proof, con-
cluding that Region V had failed to “go forward” with sufficient evi-
dence to make out a prima facie case in support of its own penalty
proposal. He appears to have reasoned that if EPA applies the TSCA
§ 16 criteria to a respondent in the manner suggested by the PCB
Penalty Policy, without first proving each of the Policy’s factual
“underpinnings” on the record, EPA somehow violates the
Administrative Procedure Act — even if the respondent has raised no
challenge whatsoever to the Policy’s factual underpinnings. See Initial
Decision at 27. If that premise were valid, it might indeed follow that
Region V had to present support (in the form of evidence or argu-

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760 ENVIRONMENTAL ADMINISTRATIVE DECISIONS

ment, as appropriate) for the PCB Penalty Policy in this case as a mat-
ter of course; and that the Region’s penalty case against Group Eight
was deficient, as a matter of law, because the Region presented no
such support.

We conclude that the premise on which the ALJ’s analysis hinges
is simply unfounded. We are not persuaded that the complainant, hav-
ing used a penalty policy in formulating a proposed penalty, must
offer evidentiary support for each and every factual proposition that
is either recited in the policy or implicit in or underlying the policy,
in the absence of either a specific challenge to the policy by a respon-
dent or a specific request for such support from the Presiding Officer.
The complainant's burden under TSCA § 16 and 40 C.F.R. § 22.24 is
only to demonstrate that it “took into account” certain criteria speci-
fied in the statute, and that its proposed penalty is “appropriate” in
light of those criteria and the facts of the particular violations at issue.
To satisfy the complainant's initial burden of going forward, it should
ordinarily suffice for the complainant to prove the facts constituting
the violations, to establish that each factor enumerated in TSCA § 16
was actually considered in formulating the proposed penalty, and to
explain and document with sufficient evidence or argument how the
penalty proposal follows from an application of the section 16 crite-
ria to those particular violations.

We conclude, moreover, that proof of adherence to a penalty pol-
icy can legitimately form a part of the complainant’s prima facie
penalty case. Assuming that (as in this case) the policy being cited dis-
cusses each of the statutory penalty factors, proof of the Region’s
adherence to the policy is evidence that the statutory factors were
taken into account. And since this particular penalty policy appears to
be designed to enhance the fairness and consistency of penalty
assessments,” proof of adherence to the policy is some evidence of
consistency and fairness in enforcement suggesting that, in that sense
at least, the proposed penalty is an “appropriate” one.

Here, however, the ALJ criticized Region V for relying too rigid-
ly, or reflexively, on the analytical framework in the PCB Penalty
Policy. He said that by Proposing a penalty generated in accordance
with the Penalty Policy, the Region was merely engaging in a “rote”
exercise that effectively assigned to the Penalty Policy a “presumption
of validity” to which only duly promulgated rules and regulations are

** See PCB Penalty Policy at 1 (The purpose of this PCB Penalty Policy is to ensure that
penalties for violations of the various PCB regulations are fair, uniform, and consistent, and that
persons will be deterred from committing PCB violations.”).

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legitimately entitled. Initial Decision at 22, We do not think the criti-
cism was valid.

The ALJ’s criticism was rooted in the principle that an agency can-
not, consistent with the Administrative Procedure Act, utilize a penal-
ty policy or other policy statement as if the policy were a “rule” issued
in accordance with APA “rule making” procedures.”* The agency must,
in some meaningful way, keep an “open mind” about the issues
addressed in the policy document, and cannot act as if those issues
are no longer subject to debate. For example, EPA was held to have
violated that principle in McLouth Steel Products Corp. v. Thomas, 838
F.2d 1317 (D.C. Cir. 1988), by denying a RCRA delisting petition on
the basis of what was supposed to have been a mere “policy” used to
predict the leachability of hazardous constituents; in its decision deny-
ing McLouth’s petition, EPA had stated that a petitioner’s waste “must
pass” the test specified in the policy, and that EPA was no longer will-
ing to consider comments on the validity of the policy because the
policy had already been “made final.” Id. at 1321. The court also
rebuked EPA for responding to another petitioner's challenge to the
merits of the same policy with a “closed-minded and dismissive”
recitation that such objections simply would “not be entertained.” Id.

We readily agree that EPA’s adjudicative officers must refrain from
treating the PCB Penalty Policy as a rule, and must be prepared “to
re-examine the basic propositions” on which the Policy is based,
McLouth, 838 F.2d at 1321, in any case in which those “basic propo-
sitions” are genuinely placed at issue. We are not persuaded, howev-
er, that we should therefore prohibit any reliance on the Penalty
Policy by the Agency’s enforcement staff, either as a tool for devel-
oping penalty proposals or to support the “appropriateness” of such
proposals in individual cases. Nor are we aware of any basis for con-
cluding that EPA decisionmakers, like those in United States Telephone
Ass'n v. FCC, 28 F.3d 1232 (D.C. Cir. 1994), have applied the PCB
Penalty Policy so inflexibly as to belie this Board's repeated assur-
ances that the Agency’s Presiding Officers are not “bound” by the
Policy. No evidence has been presented to us that would suggest such
a pattern of inflexible application.

Further, use of a written policy to assist in developing penalty
proposals should not be presumed to eliminate the exercise of sound

professional judgment from that process; nor should it be presumed
to result in penalty proposals that do not fairly reflect the circum-

25 For the APA definitions of “rule” and “rule making,” see 5 U.S.C. § 551.

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stances of a particular violation or a particular violator. To the con-
trary, fairness in enforcement might well be better served if penalty
proposals are developed in a regular and consistent manner, such as
by consulting a written policy document, than if those proposals are
generated ad hoc.* So long as the Agency’s Presiding Officers (and
this Board, as necessary) consider and address challenges raised in
individual cases, either to the decision to apply the Penalty Policy to
the case at hand, to the Penalty Policy's analysis of the TSCA penalty
factors (in general or as applied to a particular set of facts), or to the
Penalty Policy's factual basis, the Agency is not impermissibly engag-
ing in “rote” penalty assessment or otherwise granting to the Penalty
Policy the “binding” or “conclusive” effect that is properly reserved
only for rules and for adjudicative precedents.

4. Proceedings on Remand

During the proceedings before Judge Lotis, neither respondent
challenged the PCB Penalty Policy's analysis of the TSCA § 16 criteria,

*” The D.C. Circuit, for example, has made clear that the development of non-legislative
agency guidelines is entirely proper, provided that the issuing agency does not seek to invest
those guidelines with “binding effect”:

Our holding today in no way indicates that agencies develop
written guidelines to aid their exercise of discretion only at the
peril of having a court transmogrify those guidelines into
binding norms. We recognize that such guidelines have the
not inconsiderabie benefits of apprising the regulated com-
munity of the agency’s intentions as well as informing the
exercise of discretion by agents and officers in the field. It is
beyond question that many such statements are non-binding
in nature and would thus be characterized by a court as inter-
pretative rules or policy statements. We are persuaded that
courts will appropriately reach an opposite conclusion only
where * * * the agency itself has given its rules substantive
effect.

Community Nutrition Institute v. Young, 818 F.2d 943, 949 (D.C. Cir, 1987), That court has also
squarely disavowed the conclusion, mistakenly adopted by the ALJ in this case, that principles
derived from the Administrative Procedure Act require EPA to choose between issuing its PCB
Penalty Policy as a rule or, in the alternative, treating the Penalty Policy as “nonexistent,” and
“a nullity.” See Panhandle Producers & Royalty Owners Ass'n v. Economic Regulatory
Administration, 822 F.2d 1105, 1110-11 (D.C. Cir. 1987). Such an all-or-nothing formulation of
the APA's requirements simply “misstates the law.” Id. at 1110. Rather, EPA may rely on the
Penalty Policy’s analysis in deciding individual cases so long as EPA responds, in a non-per-
functory way, to any civil penalty respondent who has “seriously attacked the reasoning” set
forth in the Penalty Policy. id. Mindful of those principles, we observed in DIC Americas, 6
E.A.D. at 189-190, that EPA penalty policies usefully assist “Regional enforcement personnel {to]
calculate civil penalties * * * fairly and consistently,” but that Agency decisionmakers are under
“no obligation to adhere to [al penalty policy in a particular instance.”

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although Region V had made clear, at least since the time of its pre-
hearing exchange, that it would rely on that analysis to support its
penalty proposals. Similarly, neither respondent challenged any of the
factual propositions underlying the Penalty Policy. The Region there-
fore had no reason to anticipate or to address challenges of that
nature in its evidentiary presentation or in its briefs. In our opinion, it
was error for the ALJ to reject a penalty proposal based on the
Region’s failure to offer evidence that the Region was under no gen-
eral statutory or regulatory obligation to offer and thus, as far as it
knew or had reason to know, was not expected to offer. As we have
explained, the ALJ was free to demand further support for the
Region's penalty analysis on his own initiative, notwithstanding the
absence of any challenge by the respondents. But, although it was
entirely permissible for the ALJ to demand such additional evidence,
it was error to articulate that demand only after the hearing, when the
demand could no longer be satisfied.

For these reasons, we will remand the action against Group Eight
for further penalty assessment proceedings before a newly designated
Presiding Officer Judge Lotis having left his position with EPA during
the pendency of this appeal). On remand, the Presiding Officer shall
reconsider the penalty assessment in light of this decision, and allow
for the presentation of such additional evidence or argument as he or
she may deem appropriate. The Presiding Officer shall then issue a
decision, appealable to this Board pursuant to 40 C.F.R. § 22.30, setting
forth the amount of the penalty to be assessed against Group Eight.

III. CONCLUSION

The initial decision with respect to Employers Insurance of
Wausau is affirmed.

The initial decision with respect to Group Eight Technology, Inc.
is vacated insofar as it concludes that the complainant failed to prove
the appropriateness of its proposed $76,000 civil penalty. The
Agency’s enforcement action against Group Eight is remanded to the
Presiding Officer for further penalty assessment proceedings consis-
tent with the discussion herein.

So ordered.

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