On Appeal from the United States District Court for the Middle District of Pennsylvania (D.C. No. 94-cv-00621)
Before: Sloviter, Rendell and HEANEY,*fn1 Circuit Judges
The opinion of the court was delivered by: Sloviter, Circuit Judge.
Appellant Dean Dairy Products, Inc., d/b/a Fairmont Products, Inc., appeals the district court's imposition of a $4,031,000 civil penalty against it for Clean Water Act violations. Dean Dairy contends that the district court erred when it assessed the economic benefit Dean Dairy gained during the period of the Clean Water Act violations on the basis of Dean Dairy's "wrongful profits." Dean Dairy also contends that the district court improperly looked to the financial condition of Dean Dairy's parent company in evaluating whether it could afford the substantial penalty imposed. The American Frozen Food Institute, the Chemical Manufacturers Association, the American Automobile Manufacturers Association, the International Dairy Foods Association, and the Grocery Manufacturers of America support Dean Dairy's appeal as amicus curiae. We have jurisdiction under 28 U.S.C. § 1291.
The underlying facts of this case are undisputed and are comprehensively set forth in the district court's published opinion, United States v. Municipal Auth. of Union Township, 929 F. Supp. 800 (M.D. Pa. 1996). Briefly stated, Dean Dairy, operating in Union Township, Belleville, Pennsylvania, is a wholly-owned subsidiary of Dean Foods, Inc., the country's largest milk processor. Since 1974 Dean Dairy's wastewater, a result of the production of sour cream, cottage cheese, yogurt and ice cream, has been discharged and treated by Union Township's Publicly Owned Treatment Works (POTW). Union Township collected a user fee based upon the volume of wastewater and the amount of conventional non-toxic pollutants treated at the plant, including Total Suspended Solids (or TSS) and Biological Oxygen Demand (or BOD). In June 1989, pursuant to requirements of the United States Environmental Protection Agency, Union Township issued to Dean Dairy an Industrial User Wastewater Discharge Permit ("the IU permit") which established monthly average limits and daily maximum limits for TSS and BOD and for flow volume.
Beginning in July 1989, Dean Dairy exceeded the limits set forth in its IU permit. Its wastewater, containing the impermissibly high levels of BOD and TSS, flowed from Union Township's POTW into the nearby Kishacoquillas Creek, which was damaged as a result. There is no dispute that because Dean Dairy issued monitoring reports to Union Township on a monthly basis, it had been aware of its violations since July 1989.
In 1994, the United States filed a civil enforcement action against Dean Dairy under the Clean Water Act, 33 U.S.C. § 1251 et seq., for close to 1800 violations of the IU permit and for numerous interferences with the POTW. Following discovery, the United States moved for and was granted summary judgment on the issue of Dean Dairy's liability for the CWA violations. The action against the Municipal Authority of Union Township was settled and therefore the Authority is not a party to this appeal. Dean Dairy does not contest its liability for the violations. Its appeal is limited to the amount of the civil penalty imposed.
The district court held a three-day bench trial to determine the appropriate penalty under the Clean Water Act. Under 33 U.S.C. § 1319(d), a violator of a permit issued pursuant to the Act shall be subject to a civil penalty not to exceed $25,000 per day for each violation. This section further provides that in establishing the penalty the court shall consider the following six factors: "[T]he seriousness of the violation or violations, the economic benefit (if any) resulting from the violation, any history of such violations, any good-faith efforts to comply with the applicable requirements, the economic impact of the penalty on the violator, and such other matters as Justice may require." Id.
The district court found Dean Dairy liable for 1,754 violations of its IU permit and 79 instances of interference with Union Township's POTW between July 1989 and April 1994. It also found that Dean Dairy continued to violate its IU permit even after the United States filed suit. Although Dean Dairy took certain steps to address the violations of its permit between 1991 and 1994, the district court found these efforts were belated and ineffective. It was only the construction of a $865,000 pretreatment system, which became operational in April 1995, that succeeded in reducing Dean Dairy's pollutants to permissible levels.
Important to the issue before us is that Dean Dairy considered various options to meet its permit obligations but, as the district court found, "it continued to produce at a volume which it recognized was very likely to generate levels of BOD and TSS beyond that allowed by its IU permit. [Dean Dairy] chose not to reduce production volume because it viewed the concomitant reduction in earnings as too high a price to pay for compliance with the Clean Water Act." 929 F. Supp. at 805.
Although the district court applied the six statutory factors a court must consider in assessing the appropriate penalty for a CWA violation, the appellant presents the case as if the court concentrated almost exclusively on the "economic benefit" factor. In fact, the district court made extensive findings of fact and issued Conclusions of law on each of the six factors. See id. at 802-09. The court noted that the history of Dean Diary's violations dated back to 1989, that the excessive discharges required the Pennsylvania Fish and Boat Commission to cease stocking fish in areas of the Kishacoquillas Creek, and that its two-year delay to take meaningful action to remedy the violations did "not speak highly of its good faith in this matter." Id. at 803-08.
In connection with its evaluation of the economic benefit factor, which is the primary basis of the appeal, the district court acknowledged that the parties had previously stipulated that Dean Dairy did not realize any economic benefit from delaying the capital investments necessary to achieve compliance with its IU permit. This was due to the unusual fact that, by delaying the construction of the pretreatment plant, Dean Dairy was actually losing money because it was paying higher usage fees to the POTW for its increased volume. Thus, Dean Dairy did not reap an economic benefit by delaying the construction of the pretreatment plant. The court nevertheless found that Dean Dairy did realize an economic benefit during the period of the violations because it produced "at a volume above that which would have allowed it to operate within its IU permit." Id. at 805.
In making the finding of economic benefit, the district court relied upon a document produced by Dean Dairy during discovery and introduced at trial as Joint Exhibit 18 that outlined various options by which Dean Dairy could comply with its permit. The district court noted that Option #4 of that document indicated that Dean Dairy could drop PennMaid as a customer and thereby reduce the amount of wastewater generated. Dean Dairy recognized, however, in Exhibit 18 that losing the revenues from PennMaid would result in a loss of earnings in the amount of $417,000 in fiscal year 1994.*fn2
During the damages trial, the government questioned Fairmont plant manager Dean Koontz about that document in the following exchange:
Counsel for the United States: Let me turn your attention to Joint Exhibit 18, please. It is entitled Recap of Wastewater Treatment Options . . . .
Mr. Koontz: Okay. Yes. This is the information that I fed to Ron Crock based on the costs that Union Township gave us. And he ran some type of analysis with it.
Q: Ron Crock is the comptroller for Dean Dairy Products, is that correct?
Q: And Mr. Crock ran numbers using four options, is that right?
Q: And one of those options includes Fairmont not building a treatment plant and discharging to the Authority but cutting back on plant volume to reduce flow rate which does not allow for ...