State environmental audit privilege laws: can EPA still access environmental audits in federal court?

• Author: Austin, Christina

1. INTRODUCTION

   Over the last twenty-five years Congress, states, and administrative agencies have woven a complex web of environmental laws and regulations.(1 )Facing fines, criminal prosecutions of employees, and bad publicity if they are labeled as "polluters," diligent companies are seeking ways to protect themselves from this web. One method of protection is to conduct an internal investigation, or environmental audit, to self-evaluate compliance with federal and state environmental laws and regulations before regulators cover a violation.(2) Companies perform environmental audits by reviewing both records and operational practices. The Environmental Protection Agency (EPA) encourages companies to conduct these audits as a way to enhance the protection of the human health and the environmental.(3) The documents produced by such an audit, however, can be a double-edged sword for companies. While the identification of deficiencies allows the companies to correct problems, it can also create an incriminating paper trail for civil or criminal enforcement actions, serving as evidence that the companies were not in compliance with environmental laws.(4)

   One answer to this dilemma is to develop an evidentiary privilege for environmental audits that would exclude them as evidence in enforcement actions or litigation.(5) Privilege advocates argue this protection will encourage companies to continue these rigorous self-inspections and ultimately improve compliance with environmental laws.(6 ) Currently, however, there is no federal statutory privilege for these audit documents. Nor do environmental audits easily fit into traditional federal common law privileges.(7) States, therefore, have taken matters into their own hands.(8) Since 1993, seventeen states have passed legislation creating a privilege for voluntary environmental audits.(9) These state privilege laws, however, conflict with federal environmental legislation that explicitly authorizes EPA access to such information.(10)

   This Comment will analyze whether a federal court should uphold a state privilege law for environmental audits where EPA seeks access to such documents under its statutory authority. While not bound by state privilege law in federal question cases, federal courts can consider the policy reasons for granting such a privilege and adopt a new federal common law privilege.(11) Therefore, how federal courts decide to weigh these state statutory privileges in cases based on federal law will have a significant effect on EPA'S information-seeking authority when requesting environmental audits.

   Part II explains in more detail what environmental audits are and why state privilege laws for these audits conflict with EPA's ability to access information as authorized in federal environmental laws. Part III analyzes how federal courts apply privileges. Part IV discusses how environmental audits do not fit into currently recognized federal common law privileges. Part V suggests why federal courts should not create a new federal common law privilege for environmental audits. Part VI concludes that state privilege statutes for environmental audits should not apply when EPA attempts to gain access to environmental information in federal courts.

2. How State Privilege Laws For Environmental Audits Conflict with Federal Environmental Laws

   1. Environmental Audit Basics

      Companies conduct internal environmental audits to assess compliance with environmental laws and regulations. Companies inspect their own operations or hire contractors to perform the review and the companies compare their actual practices against 'applicable environmental regulations."(12) Over the past decade, companies have increasingly used environmental audits to track their compliance records.(13)

      While there is no correct format or method for such audits, the various definitions of environmental audits have similar elements. EPA defines environmental audits as 'a systematic, documented, periodic and objective review by regulated entities of facility operations and practices related to meeting environmental requirements."(14) Five state privilege laws similarly define them as a voluntary, internal and comprehensive evaluation of one or more facilities or an activity at one or more facilities regulated [under state, federal, regional, or local laws] ... that is designed to identify and prevent noncompliance and to improve compliance [with those laws]."(15) Federal privilege legislation proposed in the Senate by Senator Mark Hatfield R-or.) and Senator Hank Brown (R-colo.) and in the House by Representative Joel Hefley (R-Colo.) includes similar language, requiring an audit to be voluntary, initiated by the entity for the express purpose of conducting an audit, and designed to ensure compliance with federal environmental laws.(16)

      Environmental audits provide companies numerous internal benefits, which include verifying compliance with the law, evaluating their environmental management systems, and helping them to prioritize environmental concerns.(17) Additionally, however, companies who use audits benefit when EPA and the Department of Justice (DOJ) pursue enforcement actions. EPA initially sought to encourage the use of audits in its 1986 environmental auditing policy by stating it would not routinely request and use the reports as part of its investigations.(18) To improve the frequency and quality of environmental audits, EPA updated the policy in 1995 and increased incentives for companies who audit.(19) In addition to not making routine requests for the audits, the new policy eliminates gravity-based civil penalties when violations are discovered through auditing if they are promptly disclosed and corrected.(20) EPA also agreed not to recommend criminal charges to DOJ when a company has demonstrated good faith through use of an audit and self-disclosure.(21) Similarly, a DOJ policy uses audits as mitigating factors in criminal enforcement prosecutions.(22) Finally, audits are mitigating factors under the new sentencing guidelines for environmental crimes.(23)

      Despite these assurances from EPA and DOJ, some companies still seek more protection from the risks associated with generating such potentially incriminating information.(24) Companies argue the more effective their environmental audits are at discovering and reporting violations, the more likely they will be found in noncompliance and penalized.(25) Thus "good actors" who report their deficiencies will be penalized, while "bad actors" who do not report will go free.(26) Companies also contend that without a privilege, audits will be less thorough and communication of violations will be stifled, leading to less effective compliance.(27) A 1995 Price Waterhouse survey reported that sixty-six percent of companies who said they audit would not expand their audit programs unless penalties were eliminated for self-identified, reported, arid corrected violations.(28) Finally, companies also claim the audits will be used against them in citizen suits and toxic tort claims.(29)

   2. State Environmental Audit Privileges

      Numerous states have answered companies' calls for protection by creating state evidentiary privileges for environmental audits.(30) Oregon was the first to pass such a law in 1993.31 Oregon's lead was followed by Colorado, Illinois, Indiana, and Kentucky in 1994.(32) In 1995, privilege legislation was introduced in thirty-four states(33) and received approval in nine.(34) South Carolina New Hampshire, and Michigan added privilege laws during 1996 legislative sessions.(35) However some states have considered privilege law proposals and did not pass the legislation.(36)

      While the scope of and requirements to enact the privilege vary among the states, the overriding theme of the laws is clear: to promote better environmental compliance by providing some protection from disclosure for companies who willingly engaged in self-inspections. The Arkansas statute's purpose section, which is similar to that of the other state privilege statutes, is illustrative:

      [P]rotection of the environment is enhanced by the public's voluntary

      compliance with environmental laws and ... the public will benefit from

      incentives to

      identify and remedy environmental compliance issues. It is further declared

      that limited expansion of the protection against disclosure will encourage

      such

      voluntary compliance and improve environmental quality and that the

      voluntary

      provisions of this act will not inhibit the exercise of the regulatory

      authority

      by those entrusted with protecting our environment.(37)

   3. Conflicts with Federal Environmental Laws

      Federal environmental laws, however, directly conflict with such privileges by granting EPA authority to require a company to provide any information reasonably required to enforce environmental statutes. The Clean Air Act,(38) one of the first major federal environmental laws, broadly states that whenever it is necessary to carry out the objectives of the Act, the EPA Administrator or an authorized representative can "require any person who owns or operates any emission source ... who the Administrator believes may have information necessary for the purposes set forth in this subsection, or who is subject to any requirement of this chapter to ... provide such other information as the Administrator may reasonably require."(39) The Clean Water Act,(40) enacted two years later, contains similar language.(41) The Resource Conservation and Recovery Act(42) provides even broader access, stating that in order to enforce the Act, EPA, or a state with an authorized hazardous waste program, can request "any person who generates, stores, treats, transports, disposes of, or otherwise handles or has handled hazardous waste ... [to] furnish information relating to such wastes and permit [EPA]...at all reasonable times to have access to, and to copy all records relating to such wastes."(43) All of these provisions...