“We need more information, not less. Information is the sunlight and disinfectant of our system. Information is the great regulator.” – Jerry Speir, Former Director, Tulane Institute for Environmental Law and Policy(1)

Introduction

New Jersey State Senators Henry P. McNamara and Stephen M. Sweeney are the primary sponsors of S 1293, introduced in March 2004, which would grant safe harbor to regulated entities in New Jersey who conduct voluntary environmental audits. The bill contains a “privilege” component, which would afford secrecy to environmental audit information that is gathered voluntarily by companies and not subject to mandatory disclosure under a statute or regulation, and an “immunity” component, which would prohibit the government from penalizing companies when the company discloses and corrects certain types of internally discovered violations. Similar audit privilege laws exist in over 25 states, including Texas, where the law has been utilized by some of the highest polluting resident companies, such as ARCO, Enron, and Exxon, to avoid penalties and prosecution.(2) S 1293 is currently in the Senate Environment Committee, where all the bill’s sponsors are sitting members.

Proponents of audit privilege, including many state governments and industries, argue that these laws allow companies to discover and remediate compliance violations on their own without the threat of penalties or lawsuits. Opponents, including the U.S. Environmental Protection Agency (EPA), the U.S. Department of Justice (DOJ), and environmental organizations, argue that audit privilege violates the public’s “right-to-know,” and denies information to regulatory agencies.(3)

In their findings, the authors of the bill state that the new privilege will encourage companies to conduct audits to ensure compliance, “…a legal structure that promotes self-policing programs can achieve improved compliance effectively…”(4) A study, in 1998, by the National Conference of State Legislatures (NCSL), in fact, found that this is not true. During the study, telephone interviews were conducted with 988 manufacturing facilities; environmental regulatory agencies; and, offices of attorneys general in 28 states. NCSL sought to determine if the existence of an environmental audit privilege and immunity law, or of an environmental audit policy, encouraged facilities to conduct more audits, and disclose more compliance violations discovered during an audit, than facilities in states that have no audit privilege law or policy. NCSL found that the existence of environmental audit privilege and immunity laws or audit policies did not appear to influence the level of audit activity. Eighty percent of facilities reported that they were conducting audits. There was no difference in the responses based on whether the state in which the polluter operated had an audit law or audit policy, or no law or policy. NCSL also found that the existence of environmental audit privilege and immunity laws or audit policies did not appear to influence the disclosure of violations. Between one-fourth and one-third of facilities had disclosed a violation. Again, there was no difference in the responses among facilities operating in states having an audit law or audit policy, or no law or policy.(5)

If the purpose of S 1293 is to increase the likelihood of voluntary environmental audits, compliance, and disclosure of violations, then clearly the proposed law is unlikely to achieve this goal. Furthermore, no portion of this bill stands to benefit the public’s health in any way. Polluters, on the other hand, would be able to get away with breaking many environmental, health, and safety laws, with little recourse possible on the part of government or citizens.

Polluter Privilege

According to the privilege component of S 1293, any information contained in a report of a voluntary environmental audit of a company’s facilities would be company privilege, including any violations of local, state, or federal environmental, health, and safety statutes. There are exceptions. If the bill is passed, audit privilege would not apply if:

1. It is waived by the company.(6)
2. The company willingly engaged in criminal conduct.(7)
3. The information is required to be disclosed under various laws.(8) This appears to be consistent with the sponsors’ intentions to encourage facilities to conduct compliance audits, but the exception is redundant since there is no need to provide any additional reason for actions that are already mandated.
4. If an audit uncovers a violation and the company fails to remedy it.(9) However, according to the bill, the release of any information within a privileged audit report is optional.
5. Any information about a company’s actions gathered by the government or the public by any other means than through the audit report would not be privileged. For example, data discovered by the New Jersey Department of Environmental Protection or the EPA through monitoring would not be privileged. However, if the bill’s language is interpreted broadly, the company could include any information related to an audit in the audit report. This could provide an incentive for companies to include anything in the audit that they would like to remain privileged. Regulators would have a hard time finding data from any source that would not be considered privileged if this was how the language was interpreted.
6. The last exception to privilege is a legal test proposed by the bill’s sponsors: “[Privilege does not apply if a] court or administrative law judge determines that (1) the public’s interest in obtaining the information outweighs the regulated entity’s legitimate expectation of confidentiality and (2) the information contained in the environmental audit report could not be secured from any less intrusive source.”(10) This is a test used by New Jersey state courts to decide when attorney-client privilege does not apply.(11) Should S 1293 pass, enforcement agencies and prosecutors would have to pursue, to no avail, every less intrusive means possible of obtaining information in a company’s audit report before a court balances the gravity of the public’s interest in obtaining information against the polluter’s legitimate expectations of confidentiality. If the court ruled in favor of the public’s interest, only then could a company be forced to impart information from an audit report. As for weighing private versus public interests, how could the government show that the public has a stake in knowing a polluter’s actions when the evidence would be contained in a privileged audit report?

To summarize the privilege component of S 1293, once a company conducts an environmental audit, it may claim the privilege. If the company is sued, either by citizens or the government, it has the burden of showing that privilege applies, which in most cases would be as simple as demonstrating that the audit was conducted in the normal course of business, and not under mandate of a governmental agency. Should the company do this – and this is the central irony of the bill – the burden of proof would fall on the party seeking disclosure to show the privilege is fraudulent, which would be difficult, since the evidence for fraud would be privileged.

Polluter Immunity

The immunity component of the bill would prohibit the government from penalizing a company if the company disclosed and corrected certain types of internally discovered violations. That is, if the company chose to disclose the data. Disclosure is not mandatory under the bill with the following exceptions:

1. Documents or information required to be disclosed under various laws.(12) This appears to be consistent with the bill’s authors’ intentions to encourage facilities to conduct compliance audits, but the exception is redundant since there is no need to provide any additional reason for actions that are already mandated.
2. There is no immunity for criminal conduct.
3. A company is not immune from penalties enforced based on information the government acquires by any other means than through the audit report. However, the bill is written broadly enough that companies could include any information related to an audit in an audit report. This could preempt the government from using almost any data it collects about a company for enforcement purposes.

If the government wanted to gain access to a privileged audit report under the immunity provisions of S 1293, it would have to meet five criteria.(13) The criteria basically state that the government must have reasonable need to see an audit report and have tried every other means possible to acquire the data in the report.(14) If the government fulfilled these criteria, they would still need to get a subpoena to acquire the report.(15) The government could also acquire a privileged report through discovery in the course of a civil or civil administrative enforcement action. After wasting time trying to fulfill the required criteria, the government would need more time still, through the normal path of discovery, to finally acquire a report. With discovery starting so late in the course of enforcement, the investigation could be hampered.

Additionally, the authors of the bill require government officials to consider reducing charges against polluters if the polluter performed a voluntary audit, whether or not the polluter took steps to remediate violations discovered during the audit.

The [Department of Environmental Protection], in consultation with the Department of Law and Public Safety, shall establish by rule a policy whereby, in determining whether or not to impose or seek to have imposed an administrative or civil penalty, and in determining the amount of any such penalty, the performance of an environmental audit serves as a mitigating factor.(16)

For companies to have penalties reduced for proving their efforts to remediate environmental health and safety violations is reasonable. It is the EPA’s audit policy to reduce penalties for companies who voluntarily take such actions – the EPA will not fine a company that is out of compliance so long as it is not a repeat violation, there was no criminal activity involved, there was no economic gain, and there was no actual harm to people or the environment.(17) The immunity component of S 1293 goes too far because enforcement agencies, courts, and private citizens would be prohibited from using information contained in the audits to seek penalties against a polluter. It also allows companies to choose, with few exceptions, whether or not they want to disclose regulatory and statutory violations they discover in voluntary audits. This would essentially leave compliance entirely up to the company itself.

The bill’s sponsors believe that immunity will improve compliance – but, if this is true, why make it so easy for companies to hide their internal activities? If a company improves their environmental health and safety performance, why wouldn’t they want to share this information with the government and the public? Why make it nearly impossible for regulators and the public to see information contained in audit report that shows compliance?

Finally, New Jersey has a more reasonable polluter immunity law on the books. The Compliance Grace Period Law of 1995(18) grants polluters a grace period to remedy minor violations voluntarily disclosed or discovered by a local government agency. If violations are not remedied within the authorized time period, the company is penalized retroactively.

Audit Privilege and Community “Right-to-Know”

S 1293 does not violate federal law. No provision of the federal Resource Conservation and Recovery Act, Clean Air Act, Clean Water Act, or Emergency Planning and Community Right to Know Act (EPCRA) compels disclosure of information found in voluntary environmental audit reports. Nevertheless, it is the public policy of the EPA and the DOJ to rely on public participation in the permitting process, and on citizen suits of non-compliers, to enforce environmental statues.(19) Each of the laws listed above contains a community “right-to-know” component. For example, EPCRA grants the public access to information about certain facilities through the Toxic Release Inventory (TRI). The public can help enforce environmental laws by using data released on a good faith basis from industry to the TRI and cross-checking it with data made available under other statutes. Citizens in New Jersey can also cross-check TRI data with a polluter’s environmental audit for compliance – but not if S 1293 passes and the polluter conducts an audit and invokes its privilege. This bill may not violate the law, but it egregiously violates public policy and could compromise public and environmental health in New Jersey if enacted.

Ran 4/26/2004