Legislature(1995 - 1996)
01/31/1996 03:40 PM Senate RES
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* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ teleconferenced
= bill was previously heard/scheduled
SENATE RESOURCES COMMITTEE
January 31, 1996
3:40 P.M.
MEMBERS PRESENT
Senator Loren Leman, Chairman
Senator Drue Pearce, Vice Chairman
Senator Steve Frank
Senator Rick Halford
Senator Robin Taylor
Senator Georgianna Lincoln
MEMBERS ABSENT
Senator Lyman Hoffman
COMMITTEE CALENDAR
SENATE BILL NO. 199
"An Act relating to environmental audits and health and safety
audits to determine compliance with certain laws, permits, and
regulations; and amending Alaska Rules of Appellate Procedure 202,
402, 602, 603, 610, and 611."
PREVIOUS SENATE COMMITTEE ACTION
SB 199 - No previous action to record.
WITNESS REGISTER
Annette Kreitzer, Legislative Aide
Senator Loren Leman
State Capitol
Juneau, AK 99801-1182
POSITION STATEMENT: Commented on SB 199.
John Riley, Director
Litigation Support
Texas Natural Resource Conservation Commission
POSITION STATEMENT: Commented on SB 199.
Jerry Davenport, Legal Counsel
MAPCO Petroleum
1150 H & H Lane
North Pole, AK 99705-7879
POSITION STATEMENT: Commented on SB 199.
Steve Torok, Senior Representative
U.S. EPA
Juneau, AK 99801
POSITION STATEMENT: Commented on SB 199.
Ron Sutcliffe, Assistant Attorney General
Department of Law
310 K Street, Ste. 308
Anchorage, AK 99501-2064
POSITION STATEMENT: Commented on SB 199.
ACTION NARRATIVE
TAPE 96-9, SIDE A
Number 001
SRES 1/31/96
SB 199 ENVIRONMENTAL & HEALTH/SAFETY AUDITS
CHAIRMAN LEMAN called the Senate Resources Committee meeting to
order at 3:40 p.m. and announced SB 199 to be up for consideration.
He said that SB 199 was inspired by his attendance at an Energy
Council meeting where he found that 14 other states have already
done this and a number of others are contemplating it.
Although the EPA originally resisted this idea, it is changing its
philosophy from the approach that government alone is responsible
for forcing people to act certain ways to encouraging people to act
in ways to meet our environmental laws. He said many programs want
self-reporting, but they don't offer sufficient protection for
companies who voluntarily report a violation and then correct it.
SB 199 goes a long way to address that.
The key thought behind this bill is that government should view
business as a partner with a mutual interest of protecting our
environment. In many cases, because of the complexities of our
environmental and health/safety laws, a lot of businesses may
unwittingly be violating. Correcting that behavior through a self-
audit approach before it causes a problem gets us closer to
accomplishing our objectives.
Number 80
ANNETTE KREITZER, Legislative Aide to Senator Leman, said she
thought it was important to point out that "privileged materials"
as defined in this bill does not apply to documents,
communications, reports, or information required by a regulatory
agency to be collected under a federal or state environmental
health and safety law. The privilege would not apply to
information obtained by observation, sampling, or monitoring by a
regulatory agency or information obtained from a source not
involved in the preparation of an environmental health and safety
audit report.
The voluntary disclosure and immunity clause on page six grants
limited immunity from administrative, civil, or criminal penalty
for a violation that's disclosed, if the violation is corrected
within a reasonable time. The violation cannot have resulted in
injury to anyone at the site or in substantial off-site harm to
persons, property or the environment. The immunity does not apply,
if the violation was knowingly committed, if people were hurt, or
if the violation was committed recklessly by any agent of the owner
or operator. To receive immunity a facility that conducts a self-
audit has to give notice to the regulatory agency that it's going
to. The notice has to include the facility or the portion of the
facility to be audited, the time the audit has to be done, and a
general scope of the audit. A company cannot be in continuous
state of self-audit. The audits must be complete no later than six
months from the start of the audit, unless the regulatory agency
agrees to an extension.
Immunity does not apply if a person repeatedly or continuously
commits serious violations and does not attempt to bring the
operation into compliance.
MS. KREITZER then briefly reviewed for the committee the individual
sections.
Number 175
SENATOR TAYLOR asked for a practical example of how this would
apply. MS. KREITZER replied that in other states, for example, if
you miss a reporting requirement, and you voluntarily disclose
that, you are not assessed a penalty.
SENATOR LEMAN noted that the whole concept of self-auditing started
around 1977, but it has become even more important since the Union
Carbide accident in Bohpal, India in 1984 where that company
recognized that they were better off to go in and identify the
things that needed to be changed and made those changes.
Number 209
JOHN RILEY, Director of Litigation, Texas Natural Resource
Conservation Commission, said they passed similar legislation
effective May 23, 1995. He said this legislation is almost
identical to theirs in spirit and in most of the provisions.
Approximately 143 entities have availed themselves of the section
in law which anticipated applying for immunity should violations be
discovered. They haven't necessarily sought the immunity, but they
have taken the first step of giving notice of intent.
The types of entities are very different ranging from the
University of Texas, municipalities, and industries.
They have received 12 disclosures for immunity and a number of them
would not have been discovered through routine record-keeping.
None of the disclosures have been for any major contamination.
The law is being looked upon as a supplement to their traditional
enforcement mechanism, MR. RILEY said.
Workshops he has taught emphasize that the audit and their
traditional enforcement are independent of each other. If a
violation is found simultaneously, immunity does not apply. He
emphasized that the immunity is not from enforcement which mandates
certain remedial action or technical requirements.
Number 323
SENATOR LEMAN asked if they could require short-term as well as
long-term remedial action. MR. RILEY said that was right.
SENATOR TAYLOR asked him for an example of how a violation would
have been treated before the law and how it is treated now. MR.
RILEY explained there are some instances, like record-keeping,
where entities are much better at investigating themselves than the
agency is.
Number 375
SENATOR LINCOLN asked if he had seen a reduction in environmental
inspections they would normally go out on or was there a
reprioritization of their resources that they now have with self
auditing. MR. RILEY said he hadn't seen any, yet, but it is
anticipated that at some point their inspections will not have to
focus on same entities with the same frequency that they do now.
This would happen if they are satisfied that they are getting a
sufficient return on their self-policing mechanism.
Number 396
SENATOR LINCOLN asked if disclosures are made public. MR. RILEY
clarified that they do not advertise disclosures, but it is proper
interpretation of their act that those disclosure letters are
public information.
SENATOR LINCOLN asked how their legislation affects the oil
industry on self-auditing. MR. RILEY said, generally speaking, he
hoped there would be benefit from industry's compliance status.
They don't have to fear that documents they generate in the process
would be used against them.
Number 442
SENATOR HALFORD asked if he found an entity they were involved in
an enforcement action on had used the self-audit provisions in any
way as a shield. MR. RILEY said the only shield their law offers
is a shield from a monetary penalty.
SENATOR HALFORD asked what was his reaction when they are dealing
with an entity they are about to start an investigation of, because
of information or complaints, and they get a notice of self-audit
at the same time. MR. RILEY said they wouldn't stop a scheduled
inspection for a response to a complaint just because they received
a notice of intent to audit. They would continue the inspection
and see if they meet at the end with the same information. They
exercise their discretion if they determine a good effort is made.
SENATOR LEMAN said that the "privilege" applies to the audit
itself, not to the underlying facts.
SENATOR TAYLOR said he was troubled by the possibility that the
opposite of the bill were true now and that an entity which is
self-reporting is subjecting themselves to the full penal aspects
of whatever the violation might have been, even though they are the
ones who reported it. MR. RILEY said it is not clear whether self-
reporting would be given consideration for having made the
disclosure.
SENATOR HALFORD said he was concerned with both directions. In
"instructions" listed under "guidance" it says, "regional
inspectors are cautioned not to schedule inspection based solely
upon the receipt of such a notice." (Senator Halford was referring
to a TNRCC guidance document available from Senate Resources
Staff.)
Number 520
JERRY DAVENPORT, legal counsel for MAPCO Petroleum, said he has had
the opportunity to work in Oklahoma with the state agency
developing a penalty policy which has elements similar to the
immunity provisions in SB 199. Prior to this he worked as the head
of the environmental law section of Nature Ways Co. in Texas and
was very involved in doing audits.
MR. DAVENPORT explained that typically a company performs an audit,
because the law and regulations in the environmental area are
extremely complex. Getting the information to the employee to try
to comply with the regulations on a facility level basis is a very
difficult process. They have other day-to-day concerns than
reading the 13,000 pages of federal regulations. Audits are a key
tool in determining a facility is complying with all the
regulations and helping it to improve its management of the
environmental area, as well as correcting any specific violation.
Before a company adopts the position where it will actively go
forward and audit its facilities and try to get in compliance,
rather than waiting for a regulator to come by and inspect a
facility, a number of questions come up. One is if they disclose
the audits, will they be penalized for it, and will the audits be
used against them by people who oppose their activities.
He said in most cases if an inspection finds compliance problems,
most agencies will work with companies and recognize that voluntary
efforts are key to maintaining a high level of compliance within a
particular state. Of course, this isn't always the case. Penalty
policies in some states discourage the types of activities that
should be encouraged to maintain a high level of compliance. In
all honesty, when they are asked by some companies if they will be
penalized for inadvertent violation, they have to say that it could
happen, that it could be severe; but, it is far better for a
company to seek out its own problems and solve them rather than to
wait for the state to find them.
SB 199, MR. DAVENPORT thought, crafted a very careful balance
between the carrot for encouraging voluntary audits and self-
evaluation and penalties for violations.
TAPE 96-9, SIDE B
Number 590
MR. DAVENPORT clarified that the areas identified under audit are
the only areas covered. He informed the committee that Oklahoma
adopted a similar policy. In Oklahoma's policy, the term "company"
was used in order to mean those typically covered. A large Air
Force base was the first to take advantage of the penalty policy.
He said that the policy encouraged an early review from the
regulating community. In conclusion, Mr. Davenport stated that the
audit is a key tool in order for companies and regulated entities
to comply with the complicated laws and regulations they face.
CHAIRMAN LEMAN informed Mr. Davenport and Mr. Riley that testimony
would be taken from the Department of Law who have expressed
concern regarding the application of the audit privilege. He asked
them to stay on line in order to answer possible questions. Both
Mr. Davenport and Mr. Riley agreed.
Number 565
[THE TESTIMONY OF JANICE ADAIR IS TRANSCRIBED VERBATIM.]
For the record, my name is JANICE ADAIR and I'm here representing
DEC today. We certainly agree that an objective, systematic and
periodic review of a facilities operation is a very good idea.
It's one of the best things the company can do to help comply with
state and federal environmental laws. DEC's normal operating
procedure is to not take any enforcement action where things are
reported to us by a company where they have found a violation. We
have never taken enforcement action. I think it's also important
to recognize that DEC does not have administrative penalties and we
have very limited civil penalties; and Marie Sansone from the
Department of Law will talk about that more. I did bring a copy of
a project that we're trying to do here with car shops, auto shops
which will provide them with technical assistance on doing an audit
because that is one of the problems that small companies have; is
just even how to do one. There are no standards. And then also
provide them with some immunity if violations are found provided
they are quickly corrected.
Number 545
We do have concerns with this piece of legislation, however. The
privilege that's created creates a secret. It withholds
information from the public and from the regulatory agency. And it
has the real potential to increase public suspicion about the
activities and motivations of the company. We believe that this
would actually decrease cooperation. We have found that approaches
that are more open and inclusive are much more effective at
building good working relationships between the industry and
public, between the industry and the agency, and between the agency
and the public. So that everyone understands what it is that is
going on.
As we read the bill, the audit report which is a very comprehensive
definition and includes the corrective action plan that a company
would create to correct any violations that they had discovered
would be privileged and would not be subject to any kind of
disclosure. But the audit report, the documents that make up that
audit report, do not have to be labelled in any way. And yet if an
employee, a State employee, inadvertently discloses that audit
report they are subject to criminal sanctions, a Class B
misdemeanor. The department could ask a court to privately review
the audit and lift the privilege on any portion of it. But we'd
first be able to prove fraud or that the audit would show non-
compliance. And we don't know how we would prove that if we had
not ever seen the documents that make up the audit report. If
there's reasonable cause to believe a criminal offense has
occurred, the court can allow a State AG to review the audit. But
any information that AG receives from his or her review -
apparently, even if it leads to a lifting of the privilege - can't
be used to prosecute the alleged criminal. If they do, if the
agency were to make the decision to go ahead with a criminal
prosecution, we believe that we'd have to bring in a new attorney
probably, new inspectors from the department. Because we have to
prove that any information we use didn't come from the review of
that audit. So, practically speaking, we don't think that the
audit privilege would ever be lifted.
Information is, as was pointed out, that's required by law to be
provided to the department isn't subject to the dis -- to the
privilege. But we're not certain if that includes items that are
in the permits; where we have a permit stipulation that might make
a regulation more specific to a given facility. Nor do we believe
it would include any contracts or leases or compliance orders by
consent which is a very common agreement that DEC reaches with a
lot of the regulated community. The owner or operator can
voluntarily disclose to us any of the violations that their audit
identifies and receive immunity from criminal, civil, or
administrative enforcement actions providing they give us notice.
But as we read this, the disclosure is public information but the
actions that they take to correct the violation are not. They are
covered, they're within the definition of the audit report and
would be privileged. So, you would have documentation out there
that a violation had been discovered through the disclosure letter,
but whatever action the company chose to take to correct it would
be - would remain under the audit privilege. We see that as a
potential problem.
There are also stipulations about when the disclosure is not
voluntary. If it's by enforcement or decree, the immunity doesn't
apply if the violation was done intentionally. Here, there is also
some standard on injury or harm, but they're different standards.
Some it is substantial injury, some is just injury, there's other
references to substantial harm and then other references to just
harm. So, we're not really certain what has to be proven at what
point and time for the immunity. The court can find the immunity
doesn't apply if violations are serious, repeated, or continuous,
and that the person hasn't taken any actions to correct the
violations such that they've created a pattern. And that a pattern
is defined as serious violations that are separate and distinct at
the same facility. So you have this concept of these continuous
violations that then somehow become separate and distinct at the
same facility. And we do have, there are operators in this state
that will move from facility to facility and create the same
violations in different facilities. So you would have, those fly-
by-night operators that could potentially receive immunity under
this bill.
As I said in the beginning, we do support environmental audits. We
think that they're very good and it's one of the reasons that we're
doing this, this pit stop program. And if it is as successful as
other states have been with it, we plan to expand it to others.
But we do have some concerns about the way this bill is drafted.
CHAIRMAN LEMAN summarized Ms. Adair's testimony to mean that she
agreed with the legislation conceptually, but some of the language
needs to be tightened in order to agree on the concept of the bill.
JANICE ADAIR: We think that our current policy is working very
well. So, I think as far as that goes conceptually we are in
agreement. CHAIRMAN LEMAN asked Ms. Adair if she would be willing
to work with the committee in order to ensure that the language of
the bill is consistent with DEC policy and what the committee wants
to accomplish. JANICE ADAIR: If we can do that, we certainly
will--yes.
Number 489
SENATOR TAYLOR pointed out that one aspect of SB 199 to which Ms.
Adair objected was that a DEC employee could be prosecuted if they
leaked the information to someone. Are they prosecuted under the
current policy?
JANICE ADAIR: Through the Chair, Senator Taylor, no. We have the
presumption that our files are public information. Someone can
come in and look in our files. If we have confidential information
in our files, what we endeavor to do is mark those and keep them in
a different location. Since this document isn't required to be
labelled and it is a voluminous definition, it can include a lot of
different things and there is no requirement that it be labelled in
any way. So, someone could give it to us - a secretary being very
efficient, not knowing what it is puts it in the facility file and
a few days later someone comes in to look at that facility file and
there is the information. And it has then been disclosed, it is
inadvertent. But none-the-less, it has been disclosed.
SENATOR TAYLOR said that the industry should be penalized for its
inadvertent mistakes, but the agency, DEC, and its employees should
not. JANICE ADAIR: Mr. Chairman, Senator Taylor, confidential
documents should be labelled confidential.
SENATOR TAYLOR indicated that DEC should be able to take care of
that. If an audit were received, isn't there a certain protocol.
JANICE ADAIR: If we knew that's what it was. We may not know what
it is. SENATOR TAYLOR pondered how an employee of DEC could be
dealt with if the employee did not like a decision made by DEC and
the employee makes calls to various federal agencies. How do we
get to that employee if the process specified in SB 199 is
objectional? JANICE ADAIR: Mr. Chairman, Senator Taylor, I don't
know that you will ever be able to take care of disgruntled
employees in any employment situation. But, confidential documents
that a company expects to be kept confidential should be submitted
in that fashion. The definition of audit in this bill is so broad
that we could receive information that was not realized to be part
of an audit report. It would just simply go on the file and be
available for public review. There was no intent, it's a very
different situation than someone who purposely takes it and
purposely discloses it; who intentionally does that. It is an
inadvertent mistake that causes the document to be disclosed.
SENATOR TAYLOR asked Ms. Adair if she would object to the penal
aspect of the bill if the bill specified that confidential
documents be labelled as such. JANICE ADAIR: Mr. Chairman,
Senator Taylor, if that was the only thing that was changed in the
bill, we would still have concerns with the legislation. SENATOR
TAYLOR asked if Ms. Adair would still have concern with that one
provision. JANICE ADAIR: We would still have concerns with that
provision.
SENATOR TAYLOR did not understand why Ms. Adair would have problems
with penalizing an employee who intentional leaked information from
properly labelled documents. JANICE ADAIR: That particular
section doesn't require that the employee intentionally release it.
It just simply says, if it's released.
CHAIRMAN LEMAN noted that there is a section that specifies that if
the document is not clearly labelled then it would be an
affirmative defense. Chairman Leman agreed with Senator Taylor and
Senator Halford. He was interested in hearing from the people in
Texas about this issue. Chairman Leman indicated that placing the
burden on those submitting the audit to label it would be agreeable
with him. JOHN RILEY said that they decline to receive information
that is part of an environmental audit. MR. RILEY explained that
their legislation requires that before accepting a document, the
department would enter into a confidentiality agreement. The
confidentiality agreement obligates the submitter to label the
documents. In practice, the submitter must label their documents,
but this is not provided for in the legislation.
Number 402
CHAIRMAN LEMAN agreed with that method.
SENATOR TAYLOR expressed concern that this legislation would bind
the agencies within the State while having no impact on any federal
agency to whom the same document could be leaked. He pointed out
that he and his office staff receive information of a proprietary
nature involving various oil matters in Alaska. He emphasized that
he and his employees fall under that sanction; if anyone discloses
any of that information, they could be sent to jail. Why should
the standard be different for DEC?
CHAIRMAN LEMAN noted that there is a Congressional bill which would
change federal law to do this.
SENATOR HALFORD suggested that if the purpose is immunity, then the
documents could be sent to DEC sealed and remain so. There is no
reason to ever open those documents at DEC. Documents are at DEC
in order that the entity can prove that it is working on it. The
only time proof would be needed would be in the case of a
violation. He stated that perhaps, the best manner in which to
deal with this would be by DEC receiving the sealed documents so
that the entity can prove they sent the documents if need be.
Number 369
[THE TESTIMONY OF MARIE SANSONE IS TRANSCRIBED VERBATIM.]
My name is MARIE SANSONE, and I've reviewed this bill from
primarily the standpoint of its application in civil and
administrative proceedings. My remarks today are of two
categories: some are just background information and the other
category would be to raise what we view are very serious problems
and concerns with the bill. As you noted in your remarks, the
audit privilege concept is based on an evidentiary privilege that
was first recognized in the early '70s in a case Redice vs. Doctors
Hospital. In that case, a patient had died. After the death of
the patient, there was a medical peer review group. The patient's
family sought the communications by the medical peer review group
to prove medical malpractice. In 1970, the D.C. Circuit Court of
Appeals recognized a concept that there should be a privilege for
self-critical analysis or self-evaluative analysis where the
purpose of that analysis is to prevent future malpractice or future
bad conduct. That concept spread and nearly all the state
legislatures adopted such a statute and we have one in this State.
So we do have a type of limited audit privilege, if you will, in AS
18.23.030. And it may be worth looking at that statute for
language or concepts related. It's 18.23.030. After that case,
several courts went on to extend the concept of this privilege to
other areas of law. Some courts completely rejected the concept
even in the area of medical peer review. Other courts modified it.
In general, there has never really been among the courts any
consensus on what are the proper elements to assert a privilege or
to overcome a privilege. The courts have, for the most part,
rejected the privilege in environmental cases. There is one recent
exception and that is the Reichhold case out of the Federal
District Court in Florida. And I've brought copies of that
decision with me, because it does set out conditions and criteria
that the court considered important in the environmental fields.
And that case happened to be a private case among private parties
for contribution over a contaminated site. Alaska State law,
except for the medical peer review, does not have an audit
privilege. We do have the attorney-client privilege, the work-
product privilege, and the evidentiary rule that against--that
evidence of subsequent, remedial measures are inadmissible. And
these evidentiary rules are used to protect audits, at least in
part. They are available as a mechanism. There's also a mechanism
in the rules of civil procedure for parties to obtain protective
orders against disclosure. So, I wanted to leave the committee
with the impression that we are not without mechanisms to protect
information.
The federal law that would apply to Alaska - there is federal law
on the privilege and I've brought that case with me too. In 1992,
the Ninth Circuit Dowling vs. American Hawaii Cruises held that
there would be no privilege of self-critical analysis for internal
corporate reviews of matters related to safety concerns. The Ninth
Circuit didn't say that would never happen, but the conditions they
establish in their decision do set up a hurdle that would have to
be overcome. Interestingly, the Reichhold case which recognized
the privilege relies on Dowling. So, the Reichhold court thought
it could be done and I think those cases are very worthwhile to
look at just in terms of requirements and exceptions that they set
out. If the bill were to pass in its present form, the federal law
of evidence would apply to any federal cases; but the State
legislation would apply to State cases. That could create some odd
situations as we just mentioned a few minutes ago in the hearing.
The audit privilege legislation for environmental cases, like what
Texas has - the concept for that started to develop in the early
'90s in Oregon and Colorado. Similar bills have been introduced in
other states, fourteen have passed and a number are pending, some
have failed, some have been vetoed, and there are also federal
bills. I've provided the committee staff with a notebook that
contains testimony and background on many of these bills both by
industry and by enforcement agencies for and against the bills.
And that would give anyone who wants to take a look at it an idea
of the scope of the discussion.
Number 294
Virtually no one has ever disagreed with the concept that voluntary
audits should be encouraged. That under appropriate circumstances,
there should be either penalty reductions, good conduct credits,
whatever, perhaps no enforcement as a break for a company that's
acting in good faith and actually reviewing its behavior and making
its corrections. But once you get past that initial agreement over
the concepts and policies, there is or has been a lot of debate.
And these bills have had vigorous and almost unanimous opposition
from the federal and state enforcement agencies. The United
States' Attorney General for the Department of Justice has opposed
the privilege or an evidentiary privilege established in
legislation. The EPA in its new audit policy, while it creates a
policy that is designed to encourage audits and offer breaks and
incentives for audits opposes state legislation creating the
evidentiary privilege. The National District Attorney's
Association has vigorously opposed this type of legislation and
many state attorneys general have also opposed this type of
legislation. Their concerns have been that the bill is actually
not necessary to encourage compliance. That unless they're
carefully drafted they'll create safe harbors for polluters,
promote fraud, that they'll divest state enforcement officials of
their discretion, invest that discretion in judges who will not be
familiar with the case or the evidence. That the secrecy the bill
could create if it's drafted very broadly would create mistrust of
the enforcement agencies, regulatory agencies, and the very
corporation it's intended to benefit. The corporations are
conducting audits to avoid accidents and liability and that the
fear of a disclosure requirement would not inhibit those audits.
In the jurisdictions where this type of legislation has been
debated, some industries have vigorously supported the bills.
Other industries have supported the concept of incentives, but not
necessarily through a statutory privilege or immunity. In any
event, there's been a huge volume of testimony and that can
probably tell you I've given it at least five inches worth. And I
don't intend to cover all of that. In states where its been
debated, it has produced a very adversarial bill. These bills
contain within their framework, this adversarial relationship is
built right into the bill. And I think if you carefully go through
a lot of the exceptions and provisions in the Texas bill, you will
see that. One provision will be very broad, the next provision
will kind of chisel away, another provision will be broad, the next
will chisel away. So, that adversarial nature is built right into
the bill.
Number 239
With that background, I want to emphasize a few points. We're very
concerned with the breadth of the bill. The definition of
environmental or health and safety law is very broad. It is not
just DEC and OSHA; there are environmental bills, environmental
laws vested in many state agencies and they are scattered
throughout the entire Alaska statutes. DNR has environmental
enforcement, regulatory authority. The Alaska Oil & Gas
Conservation Commission regulates oil and gas drilling to prevent
land and water contamination. And they have, they are participants
in the EPA's underground injection control program. The joint
pipeline office regulates the Trans-Alaska Pipeline for
environmental compliance and safety. Department of Fish and Game
has what could be construed as environmental laws. The Department
of Public Safety regulates hazardous materials. And I probably
omitted many agencies and many environmental laws. So that would
be one of our concerns: that it would be improper and incorrect to
view this bill as just dealing with DEC enforcement. If that were
the intent, it would need to be more narrowly restricted. Or
perhaps, that is not the intent, but I think it's important to
understand that. Similarly, there are many laws that could be
considered occupational and health and safety laws not just OSHA.
But worker's compensation would be classified as an occupational
and health and safety law. The Department of Health and Social
Services regulates and licenses health facilities and operations,
not just for patient care type regulations. But in many cases, for
occupational, compliance with occupational laws. Professional and
occupational licenses are another area that could be construed as
a health and safety law. So, again if the intent is that this
would just cover OSHA enforcement, the bill as its drafted does not
do that.
Number 213
We're also concerned with the definition of environmental or health
or safety audits. These audits can be conducted by an owner or
operator, an employee, an independent contractor. We don't have a
concern so much as to who conducts an audit; but the critical issue
in granting immunity or granting a privilege, giving someone a
break would be who had the authority to initiate that audit, who
had the authority to commit the funds and undertake the corrective
action. As the bill is drafted, anyone in a large corporation in
any division could initiate an audit. Maybe they would have
authority to undertake the correction, maybe they wouldn't. But
that is very simply too broad when we're going to give sweeping
privileges and immunities. As a practical matter, when the
attorney general's office includes an audit requirement in a
settlement agreement one of the criteria that we would look at is:
does the person or the entity have the wherewithal to actually
conduct and complete the audit and undertake the corrections. That
would be very important to us to whether or not they should be
entitled to any kind of break on whether or not we're going to
bring a case, or whether or not we would offset any civil
assessment. Related to that, but not the same concern, is there
are no standards for audits. There's no licensing for audits and
there's a variety of audits. So that combined with the question of
who can undertake one creates potential for abuse we feel.
Number 184
Perhaps the most troubling aspect is the definition of audit report
in the bill. And the bill is drafted so broadly that any document
or communication of any nature whatsoever that is generated before,
during and after the audit, if it can somehow relate to the audit
and the resulting corrective actions is classified as the audit
report. In the law of evidence there is nothing, not even the
attorney-client privilege that would even approach a privilege of
that scope. We don't believe there's justification for creating
a privilege for the raw data that might be collected in the audit:
the photos, the maps, and so forth. I find it very hard to see
that there can be a justification for that. We believe there's no
justification for the privilege to apply to the implementation plan
or the corrective tracking system. There'd be no point to gather
the information and chart a course of corrective action and then
keep that information confidential, or at least it doesn't seem
like there'd be any point to keeping it confidential. Because if
you were undertaking the corrective action that frequently is to
provide employee training, obtain appropriate permits. It just
doesn't seem to make sense.
The case law that I've provided you, the Dowling and the Reichhold
case, recognize that there's no justification for keeping a
privilege -- keeping a report confidential for post-audit conduct.
So, if a party conducts an audit, the audit finds deficiencies and
recommends corrective actions and then lo and behold those aren't
undertaken, there's an accident, there's injury; that report should
not be confidential as to that post-accident, that post-audit
conduct. And that is a principle that is recognized in the federal
courts that have recognized an audit privilege. Finally, along
with the audit report definition most courts carve out exceptions
for evidence where there's exceptional necessity or extraordinary
hardship. And those circumstances might be that a witness died or
a witness is impossible to locate who was interviewed as part of
the audit, that the evidence is destroyed or missing, it is
impossible to otherwise obtain the evidence. That kind of
exception should be built into those provisions.
We're very concerned with the marking requirement. The report is
supposed to be marked, but there are no consequences to not marking
them. There are all kinds of materials that could be part of the
audit report that would look no different from any other document
that might be submitted to DEC or to a regulatory agency. Under
the bill, anyone can mark a document. Anyone can mark a document
at any time even years after an audit is completed. For the
immunity provisions to kick in, there has to be advance notice to
the regulatory agency of the audit but not for the privilege. So,
apart from the immunity, there's no real starting point to when you
can start thinking about the audit and start marking your materials
confidential. I guess the point, the conclusion to that is that if
the legislature concludes there's policy reasons that would support
creating an evidentiary and disclosure privilege, those policy
reasons we do not believe would support going this far. We just
think its too broad, that it will invite fraud and abuse. And that
we'll be keeping information secret that's actually vital to
protecting public health and safety.
Now with respect to the privilege, and I believe this might be a
conflict between the way the bill is drafted and the way its being
implemented in Texas, but if you look at the very first paragraph
of the bill - that privilege applies to any type of litigation, it
can, whether it's civil, criminal or administrative. It could be
asserted by public or private parties, it could be asserted when
the State is bringing a case. It wouldn't necessarily have to be
an enforcement case. It could be asserted if the State has been
sued and we're trying to obtain discovery of an audit report in our
defense. And it could be asserted between private parties and
there's quite a lot of case law where private parties argue about
this in terms of contribution over contaminated sites or insurance.
So, it is an issue that comes up in private litigation. The way
the bill is drafted, again I don't know if this the intent or not,
but it applies to any type of dispute: negligence, intentional
torts, contract problems, property problems. The State has leases.
We have property management contracts. DOT is concerned that it
would come up in condemnation cases. The University and Mental
Health Lands Trust manage property and this could be asserted in
any dispute involving those issues. Now, again that may not be the
intent, but that is the effect of the language. Construction law
is another area where there could be serious consequences. The
State either contracts or gives grants to municipalities for large
public works projects. Often there have to be audits in connection
with these projects. As far as DEC goes, DEC brings injunctions on
occasion to stop continuing violations and civil assessment and
cost recovery statutes; it could come up in any of these contexts.
It would apply to any type of remedy, not just penalties. It could
be damages. It obviously applies to criminal proceedings. In
administrative proceedings, that those could be conceivably
enforcement. There are other administrative proceedings such as
revocations of licenses where professionals or facilities have
fallen far below in the accepted standard of conduct. We sometimes
litigate over lease terminations in administrative context because
the lessees are not maintaining the property. Contract debarment
is another type of administrative proceeding. In other words, and
I probably haven't mentioned all the types of proceeding, but the
State participates in many proceedings. And the privilege applies
to all of those. So the potential for the impact of this bill is
enormous. To create a new privilege that could be invoked in so
many different types of proceedings, would take very careful study
and review. The privileges that are in the law that have been in
effect, those privileges evolved over a very long periods of time
and were refined through the courts and they're very narrow.
Civil, for a broad privilege of this nature, it is very contrary to
our civil discovery of practice and policy, the laws of civil
discovery. We have very broad discovery to promote resolution of
disputes and promote a level playing field. Parties in civil
litigation are required to disclose any matters that are relevant
to the subject matter of the dispute. And that's to encourage
settlement and proper resolution of the dispute. When a privilege
is asserted under the civil rules, or if a party desires a
protective order, there are mechanisms in effect now to achieve
that.
The third point I want to make - we feel that the provisions in
many respects are cumbersome, confusing, and would create
substantive problems. We feel there are a number of drafting
problems that have evolved here just from picking up the bill and
trying to impose it on Alaska law. For example, the bill provides
the person asserting the privilege has a burden of proving it
applies. Well, with the definitions this broad, a party could
simply assert and prove just about anything. That is the scope of
the definitions. The burden then shifts to the person seeking
discovery or to the State to show that the documents fall in a
category that's not protected, or that there's fraud, or that
there's been non-compliance.
TAPE 96-10, SIDE A
Number 001
But as this bill is drafted, it would be logically impossible to do
that.
The second problem we see there, again, is the post-report conduct
should not be subject to the privilege. That principle is picked
up in our medical peer review law and our Reichhold case.
We're concerned with the category of nonprivileged material. As
drafted, it refers to materials collected under the law. It
doesn't mention permits or other authorizations. They frequently
contain detailed requirements. It doesn't reference, although
possibly there's later provisions that would cover it, judicial and
administrative orders. But, significantly, this section does not
provide for public contracts, public grants, to require audits or
require this information. While it's true, you can still agree
under this bill to exchange that information, I think that the
provisions are such that we would lose quite a bit of bargaining
leverage to do that.
With respect to immunity, Ron Sutcliffe will discuss that. I do
want to point out a few things. The bill provides immunity for
administrative penalties. DEC does not have any administrative
penalty authority. Therefore, the bill would not have any effect
on DEC in this regard. Other agencies do have administrative
penalty authority and it would affect them. DEC does not have
civil penalty authority, except for air quality and hazardous
waste. In all other areas of DEC environmental regulation there is
no civil penalty authority. The civil assessments are required to
be compensatory for damages and costs and remedial.
Another concern that arises here is that if you look throughout the
Alaska statutes, there's penalty provisions throughout them. Some
are detailed. Some are simple. They are all very different. The
bill as drafted applies to all of those. So, its exact impact
would not be known without very careful study.
As a fifth point, we are very concerned with the provisions that
impact State employees. In recognizing that there are concerns
with unauthorized disclosure information, there are still many
provisions in here that cast State employees and State agencies in
a very negative light and would actually have a very chilling
affect on their ability to do their job. In a similar reverse
image, many of the exceptions for the corporations cast
corporations in a very adverse light and are designed to ferret-out
corporations that are bad actors or midnight dumpers. These types
of provisions in the bill set up very adversarial tensions that do
not foster good audits. Where we have required audits in
environmental enforcements and where they have worked, there's been
a great deal of cooperation between the agency and the entity. The
agencies have been involved in designing the audit, have monitored
the conduct of the audit, have reviewed the conclusions. I do
have several examples of that.
A couple of years ago, we had a very successful compliance sort-of
by consent with Kake Tribal Corporation. They had approximately
10-years of violation. Previous enforcement efforts had failed.
There had been two criminal convictions, one probation revocation,
and numerous notices of violation, but did not produce any results.
They had multiple violations in every area, solid waste, hazardous
waste, water quality, drinking water, sewage, all around a great
deal of problems. The first step of the civil enforcement action
was to require and agree with Kake on conducting, we called it an
assessment, but it was actually an audit. They did a very thorough
job. They reported to us violations we were not aware of, that
were very serious.
As part of the settlement, they received a very significant
reduction in their civil assessment for this. They also undertook
projects that went way beyond any legal requirements.
Another example of where audits are very successful in the State is
the joint pipeline office. The joint pipeline office works to
audit the pipeline and they have received a national award for the
audit structure they use. They have indicated in a communication
they have detected 5,000 violations through audits. That's a
significant number of violations of health and safety laws. Their
response was to correct that and no penalties have been assessed.
These are the models we would want to use in crafting audit policy.
Audits that do not create and foster adversarial relationships and
that actually do produce compliance and positive relationships
between the agencies and the regulating community.
I'll be happy to answer any questions.
Number 127
SENATOR HALFORD said it seemed that they could deal with this whole
issue if we just codified the federal privilege in State law and
applied it.
MS. SANSONE said that would certainly overcome a lot of our
objections and it would not set up a state/federal conflict in the
evidence law.
SENATOR LINCOLN asked if there was anything in the bill she did
like and had she attempted to work it out with the sponsor of the
bill. MS. SANSONE replied that they had discussed approaches that
would preserve the intent that would work. They haven't been able
to explore those in depth, yet. They like the concept of audits
from the civil standpoint. They have no objections to giving
people offsets or reductions, or working with them to give them
breaks for audits. We think that's appropriate. I think the
immunity section, if you try to apply the immunities, there's many
exceptions and you could argue for a long time whether you were in
an exception or not. The important thing is that we encourage
people to audit. That we get them into compliance and that if
there is good conduct, they probably are entitled to some kind of
break. Whether that's immunity, whether that's penalty reduction.
The incentives through the immunity provision are aimed at a very
narrow group of people for violations that don't result in injury.
Corporations or individuals that have violations that result in
injury and damages maybe could benefit even more from conducting
audits and I think we could agree we should encourage that.
SENATOR HALFORD asked if we codified the federal privilege and its
four points, would she have any objections to that applying
directly to environmental audits. MS. SANSONE replied that she
thought that would be appropriate. She thought including the
policy statement that is now in the bill would be good, also.
SENATOR HALFORD asked if in the federal privilege that immunity
applied even though injury or death may occur. MS. SANSONE replied
that under the federal law that privilege attaches to the prior
conduct, the evaluation of the prior conduct. If there's future
bad or negligent conduct, it does not apply.
SENATOR HALFORD asked if it attaches to prior conduct that includes
injury or death. MS. SANSONE said that is correct.
Number 217
STEVE TOROK, Senior Representative, U.S. EPA, said they had not
completed a thorough review of SB 199, but he wanted to make some
general comments on the concept. Alaska and EPA share the goal of
achieving cooperation of regulated entities to obtain compliance
with environmental laws. The critical question is how to achieve
that goal without shielding environmentally irresponsible behavior
or increasing environmental litigation. The vast majority of
regulated entities do comply with environmental law. The focus of
their enforcement is, and has been, on the violators, not the
compliers.
EPA's policy applies when a regulated entity undertakes a voluntary
environmental audit or self-evaluation. It provides three
incentives to conduct them and disclose violations that may be
discovered during those audits. First, EPA will completely
eliminate punitive penalties for companies or public entities that
voluntarily identify, disclose, and correct violations. EPA will
also reduce punitive based penalties by up-to 75 percent for
regulated entities that meet most, but not all, of the conditions.
This ability to partially reduce penalties is preferable to an all
or nothing approach.
Second, the EPA will not recommend to the Department of Justice
(DOJ) that criminal charges be brought against a company acting in
good faith to identify, disclose, and correct violations, so long
as no serious actual harm has occurred. Under the federal system,
the DOJ has the ultimate authority on criminal prosecutions.
However, EPA recommendations carry significant weight.
Third, EPA will not request voluntary environmental audit reports
to trigger or initiate enforcement actions. This was in practice
since 1986 and its change will alleviate the fears that an audit
report will invite investigations that would not otherwise occur.
EPA may request audit report information, if violations have been
identified by other means.
In summary, EPA, has struck a balance between the encouragement of
good behavior and the loss of some regulatory discretion. The
policy allows EPA to exercise its enforcement discretion in those
cases where environmental violations must be addressed by the
severity of criminal sanctions. EPA will also be able to assess
penalties where the violator has realized an economic benefit as a
result of that violation, since the agency believes that even a
company that inadvertently violates environmental law, should not
gain a business advantage over companies that do comply with
environmental laws.
Several independent studies support EPA's final policy of voluntary
cooperation. An Arthur Anderson survey of corporate general
counsels in 1992 revealed that nearly 60 percent of the
corporations surveyed have had compliance audits performed between
1989 - 1991. Another almost four percent before 1989 had already
conducted environmental audits. While only 37 percent of the
corporations surveyed had never undertaken a formal compliance
audit. This shows that a majority of the corporations have already
found it to be to their advantage to conduct compliance audits. Of
those corporations conducting audits, only 16 percent of the
general counsels reported that they altered their procedures for
conducting audits, because of concerns that the violations they
find might be used against them. The overwhelming majority
expressed no such concern.
Voluntary cooperation by regulated entities is also exemplified in
a study of the Investor Responsibility Research Center (IRRC). In
its 1994 corporate profiles directory, the IRRC surveyed more than
249 companies covering 75 of the 86 standard industrial groups.
The study found a large amount of voluntary compliance through
various programs.
Preliminary results from EPA's internal survey on the use of
information from voluntary self-disclosures and voluntarily
performed environmental audits supports the EPA's policy goals.
EPA regional offices reported that of the over 4,600 enforcement
actions taken during fiscal years 1993 - 1994, only 62 reported
actions, nearly one percent, were initiated on the basis of
voluntary self-disclosed information. Of that one percent, 75
percent had penalties that were either reduced or eliminated
completely. To their knowledge, the federal government has never
initiated a criminal enforcement case based upon a voluntarily
submitted environmental audit.
Alaska enjoys a reputation of a State that exercises enforcement
discretion and actually puts its effort towards solving the
problem, not putting its effort toward collecting punitive damages.
In other audit privilege states, the existence of an environmental
audit privilege has not lead to any increase in voluntary
compliance.
The EPA generally opposed the creation and adoption of new
statutory and environmental evidentiary privileges. The issue
associated with the privileges and subsequent litigation create
serious resource drains on government and private litigators. Such
statutes can encourage litigation.
The U.S. Supreme Court has stated in a number of opinions that
privileges are impediments to the search for the truth. They
should not be created lightly, nor construed broadly.
EPA feels that incentives should be structured in policy rather
than establishing a statutory evidentiary privilege or immunity,
the later of which could be used to shield evidence of violations
from law enforcement officials, deny the public its right to know
useful information affecting its health and environment, MR. TOROK
stated.
Number 350
If the legislature feels that a statutory provision is necessary to
encourage environmental auditing and voluntary compliance, they are
prepared to work with them on its development.
Number 373
SENATOR HALFORD asked for clarification on the percentage of
companies concerned with enforcement of violations that were
discovered through environmental audit. MR. TOROK restated that 60
percent of corporations surveyed had already had a compliance audit
performed. Only 16 percent of those had altered their procedures
for conducting the audits, because of concerns that the violations
they find can be used against them.
SENATOR HALFORD said he thought 16 percent was a significant
number.
Number 414
SENATOR HALFORD also stated he thought that SB 199 was specific in
avoiding his concern regarding evidence needed in enforcement being
tainted by evidence covered under a privilege. He said he thought
it was the intent of the sponsor that that wasn't the case.
MR. TOROK said one of the areas they would be concerned about are
the immunities and how they would affect delegated federal programs
that the state has already assumed, or is working toward
presumption. For example, the Clean Air requirements are for the
State to have similar, if not equal, capabilities of collecting
penalties. Whether the State decides to collect penalties is up to
its discretion. In order for them to grant approval of the
program, the State has to have the capability to collect the
penalties.
SENATOR HALFORD asked if they were to codify the federal privilege
with regard to self critical analysis, that would not be a problem.
MR. TOROK said that would address the privilege, but he didn't know
if that would address the immunity issue. SENATOR HALFORD agreed,
but he thought they were so closely related, that one flows from
the other.
Number 430
RON SUTCLIFFE, Assistant Attorney General, said the immunity
provision is the issue that concerns the Criminal Division most.
They are afraid it may effectively undermine their ability to
prosecute serious environmental crime. They believe the "bad
actors" would use it to avoid criminal liability.
There were some ambiguities with the way the immunities were
written in the bill. In criminal law, MR. SUTCLIFFE said, if there
are ambiguities, they are going to be strictly construed against
the State.
Starting with section 475, the environmental disclosure is
voluntary if it's made promptly and there is no definition of what
promptly means.
Also when you make a disclosure and have to send it by certified
mail, it's not clear whether the sending of it triggers the
notification or the receipt of it does.
Under subsection 5 the person who makes the disclosure has to
initiate an appropriate effort, which should be defined. The "due
diligence" definition should be tied to some other "due diligence"
definition in criminal law.
In subsection 7, they are concerned with the substantial off-site
harm and what that means.
On page 7, in subsection (d) (1) - (3) they had problems with the
negligence, because it's not clear who would determine negligence.
Under subsection (f) there is no definition for substantial injury
which could pose some problems. Also, in subsection f there is
presumption language, that the State would have to prove beyond a
reasonable doubt, in order to rebut the presumption, and that would
be an intolerable burden. There are other standards that are
possible, like clear and convincing evidence, that would be easier
to use.
Number 481
SENATOR HALFORD asked what standard of evidence they use to
prosecute. MR. SUTCLIFFE answered proof beyond a reasonable doubt
in a criminal case. Under subsection (h) there is a way for the
State to get around the immunity provisions, if there have been
repeated or continuously committed violations. However, there is
no definition of a serious violation.
His Division was concerned that there had to be three distinct and
separate events in a three year period at the same facility or
operation and that might result in them moving around. It would be
more appropriate for it to apply to any of the facilities a
corporation might own.
Number 524
MR. SUTCLIFFE said one of the problems with the privileges was the
that a corporation could appoint everyone at a facility as part of
the audit team, so, if these people were subpoenaed later, they
could testify about things that did not happen as a result of the
audit. He thought that would lead to a lot of hearings on motions
to quash subpoenas.
He said it was clear from the legislation that they could use
independently discovered material to prosecute, but they were
afraid that would end up in a series of proceedings where they have
to prove to the court that they actually discovered it from an
independent source.
SENATOR LEMAN said if the audit report were sealed, their job would
be easy. MR. SUTCLIFFE answered the way it written now, if they
got it from a search warrant, if it were sealed, he wouldn't be
able to get it from DEC. Under a search warrant, it's sealed
anyway. SENATOR LEMAN clarified that if it were sealed in the
first place they wouldn't have to prove to the court that the
source of information was other than the audit report. MR.
SUTCLIFFE agreed.
SENATOR HALFORD asked in prosecution, do they have to deal with the
existing privilege against self-critical analysis. MR. SUTCLIFFE
answered that he had never run-up-against it and he had had only
one self-critical audit in two years which he declined. SENATOR
HALFORD commented that that meant there was some protection, then.
MR. SUTCLIFFE said the violation had been discovered by DEC before
the disclosure, but it had been remedied, so they exercised
discretion. He said when he prosecutes, he does it in front of a
jury of 12 people, and he couldn't imagine a jury convicting, if
the violation had been remedied.
SENATOR HALFORD asked if the administration has commented on
language on page 9, section 09.25.480 Circumvention by Regulation
Prohibited. MR. SUTCLIFFE said he didn't know the answer.
SENATOR TAYLOR said he thought this concept was well worth looking
into and he commented on an incident that happened in Wrangell when
EPA did not exercise their discretion.
TAPE 96-10, SIDE B
Number 580
SENATOR TAYLOR said he got the penalty reduced to $2500, but
everybody felt like they were being treated like some sort of
criminal. They were subjected to arrogance and insult. That is
what prompts legislation such as this. He said that attitude was
very frustrating to have to deal with and he applauded all the
assistance that has been offered on working out good legislation.
Number 552
CHAIRMAN LEMAN said they were running out of time, thanked everyone
for their help and adjourned the meeting at 6:03 p.m.
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