Calculating Backwards to Resolve AEO Penalty Cases

Calculating Backwards to Resolve AEO Penalty Cases Rod Lorang Senior Deputy County Counsel County of San Diego

Calculating Forward • Facts on hand • Violations by type • Days in violation [adjusted] • Statutory penalty range • Statutory penalty factors

Problems • A huge penalty range • A huge UST “minimum” penalty number • Unrealistic politically and for settlement • Disproportionate • Unnecessary for an effective program • You need to settle most cases • You need to “be reasonable” • You need to win if an order is appealed

Your Goals • Settle the case; OR • Win the hearing AND • Be legal • Be fair • Be consistent • Be effective

Addressing Problems • Find some flexibility • Create and communicate risk • Get the facts • Get the picture • Resolve the real issues • Pick your forum, then pull the trigger • Negotiate

Finding some flexibility:level one / statutory factors • Ch. 6.11; H&S 25404.1.1(b) • “nature, circumstances, extent, and gravity of the violation, the violator’s past and present efforts to prevent, abate, or clean up conditions posing a threat to the public health or safety or the environment, the violator’s ability to pay the penalty, and the deterrent effect that the imposition of the penalty would have on the violator and the regulated community.” • Don’t overanalyze • Show “consideration,” retain discretion • Cf. other similar provisions

Find some flexibility:level two / endorsed by Lisa • The (borrowed) “one day” option • Same requirement on multiple days with no intervening notice and cure opportunity • The (borrowed) “one error” option • Same requirement at multiple units at the facility • The (borrowed) “same elements” option • Violations are not independent or substantially distinguishable

Find more flexibility: Enforcement Discretion • Which violations do youchoose to penalize? • Remember your goals. What do you need? • Select by significance? to educate? to deter? • Maintain a focused case and focused message • “Same facts” • Did one thing wrong but multiple violations • Not the same as “same elements” • Your litigation risks

Create and communicate risk to the operator • Creating risk is easy • Note that: • Settlement proposals do not limit a potential unilateral order • Violations omitted for settlement purposes can come back • “One day” offers can be for settlement purposes only

Risks to the operator • Kicker: what else could we prove if we did discovery? • UST Kicker: ALJ must impose at least the statutory minimum penalty for proven violations

… communicate risk • Communication is strategic • No smoke re critical potential add-ons • Must convey directly to the “client” • Must respect the role of the attorney • Have and show no fear re going to hearing • To be credible, you must also explain why you are still willing to settle

Get the facts • Don’t commit to a penalty position too soon • Meet and listen • Attitude and efforts pre-violation • Extenuating circumstances • Things (allegedly) said by your staff • Corrective efforts and attitude now • Legal issues • Always listen

Get the facts • Meet and poke • Knowledge, negligence • Program deficiencies • Staffing, training, resources • Configurations • Decisions made • Days in violation

Get the picture • Are they ready to comply? • Are they on the right path to comply? • (Hard to assess except face to face with the right people) Then ask yourself: • How can this enforcement action best contribute to future compliance?

Resolve the Real Issues before addressing penalty issues • Your real issues • Return to compliance • Robust program for compliance • Operator’s real issues (typical) • I’m not really a bad guy • You listened to me and are treating me fairly • My relationship with your agency will be o.k.

Resolve the Real Issues • Attorney’s real issues: • I spotted and raised issues effectively • My client understands this decision • The agency position is legally defensible • The settlement does not damage my client’s long term best interests • Sometimes, comparative penalties

Pick your forum… • How will this case be resolved? • By the RP, or by an agent / attorney • Based on numbers? adherence to rules? perceived equity? business considerations? • What are the RP’s internal communication or approval requirements?

Pick your forum • What forum for negotiations will work best? • First meeting • More meetings • Written exchanges

…then pull the trigger • The Number • The Story • Note the issues, and issues already resolved • Explain the number • Cover the statutory issues • Address your audience • Introduce or note the role of SEPs • Specify next steps for resolution

The Numbers • Target figure, opening offer, order figure • Calculate a defensible range per facts, statute, DTSC, etc. • All three figures should be in this range

Target figure • Your sense of what will work in this case, • Any consistency constraints

Opening Offer • Adjust the target figure with an allowance for bargaining • Depends on you and your dance partner • As little as 20%? • Agreed consistency context • Good performance by RP • As much as 300%? • Big swing factors • Attorney negotiators

Unilateral Order Penalty Figure • Probably not the same as your settlement target figure • Develop per Lisa and Vince • Or, drop “one day” limitations • Start with this in your pocket

Negotiate • You can’t “lose” re the dollars • If you have an appropriate bottom line, and are willing to issue a unilateral order if you don’t get that amount, you will get at least your bottom line. • Winning on dollars isn’t the goal • SEPs are a great closer

Additional Issues • Consistency and fairness • Economic benefits under Ch. 6.11 • Is action by the “governing body” really a precondition for Ch. 6.95 Article 1 (business plan) penalties?

Consistency and Fairness • Cases are all different • Cases are all multi-faceted • Enforcement discretion is well-established • 10 times variation based on statutory factors, e.g. “deterrent effect” • Appellate risks are low

Economic Benefits under Ch. 6.11 • Not obviously encompassed by “nature of the violation” • Your choice

Economic Benefits under Ch. 6.11:Pros • “Level playing field” • In theory, objective • In theory, eliminates the economic incentive to violate • Dispassionate, not vindictive • We think it is fair; they should too

Economic Benefits under Ch. 6.11:Cons • Invites intractable disputes into the settlement process • Whether to do it • How to do it • Facts and parameters • Not confined to “in the range” decisions • A separate, inconsistent calculation model • For Ch. 6.11, minimal legal relevance • An interpretation of one factor, in a list of discretionary factors • Can’t override maximums, minimums, or listed factors

Economic Benefits under Ch. 6.11:more cons • Doomed by imperfect implementation • Not all actors • No adjustment for expected values • Distracting to both sides • Unnecessary • You probably don’t need it to justify your numbers

Economic Benefits under Ch. 6.11:Theoretical Cons • Not pricing the externalities from violations, only the private market benefits • Presumes optimal regulation • Can’t get you to “optimal non-compliance”

Ch. 6.95 Article 1, 25514.5 “set by the governing body” • Is action by the “governing body of the administering agency” necessary to impose these administrative penalties? • 25514.5 was originally enacted in the early 1990’s “to provide local agencies with an alternative and effective means of enforcing…”

25514.5 continued • Amended as part of the big UST / CUPA bill in 2002 (AB 2481) • That bill was intended to provide for uniform administrative enforcement of CUPA programs • 25404.1.1(a)(3): “the violator shall be subject to a penalty that is consistent with the administrative penalty imposed pursuant to Section 25514.5.”

25514.5 “I think” • Can read 25514.5 as authorizing but not requiring local bodies to set maximum penalties • CUPA applications are a sufficient adoption of statutory penalties • It would be prudent to arrange for clear governing body action anyway

Calculating Backwards to Resolve AEO Penalty Cases