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Oil Re-Refining Co. v. Environmental Quality Commission

Supreme Court of Oregon

February 9, 2017

OIL RE-REFINING COMPANY, Petitioner on Review,
v.
ENVIRONMENTAL QUALITY COMMISSION, Department of Environmental Quality for the State of Oregon, Respondent on Review.

          Argued and submitted May 9, 2016

         On judicial review from the Court of Appeals [*] (OAH 1001690, CA A149365)

          Aaron J. Bell, Bell Law Firm, P.C., Wilsonville, argued the cause and fled the briefs for the petitioner on review.

          Dustin Buehler, Assistant Attorney General, Salem, argued the cause and fled the brief for the respondent on review. Also on the briefs were Ellen F. Rosenblum, Attorney General, and Benjamin Gutman, Solicitor General.

          Before Balmer, Chief Justice, and Kistler, Walters, Landau, Baldwin, and Brewer, Justices, and Ortega, Judge of the Court of Appeals, Justice pro tempore. [**]

         The decision of the Court of Appeals and the final order of the Environmental Quality Commission are affirmed.

         Case Summary:

The Department of Environmental Quality assessed civil penalties against a company for violations of 40 CFR section 263.20(a)(1), as adopted by OAR 340-100-0002(1), which prohibits a transporter from accepting hazardous waste without a proper manifest form, and ORS 466.095(1)(c), which prohibits operating a hazardous waste treatment site without a proper permit. The company argued in defense that it reasonably relied on assurances by the generator of the waste that the material being transported and treated was not a hazardous waste. The Environmental Quality Commission interpreted the relevant provisions as imposing a strict liability standard and rejected the company's reasonable-reliance defense. The Court of Appeals affirmed the strict liability interpretations.

         Held:

(1) when an agency promulgates a rule that incorporates a federal rule by reference, the agency's incorporation is equivalent to republishing the referenced federal rule in the agency's own rule; (2) 40 CFR section 263.20(a) (1), as adopted by OAR 340-100-0002(1), imposes a strict liability standard; and (3) ORS 466.095(1)(c) imposes a strict liability standard.

         The decision of the Court of Appeals and the final order of the Environmental Quality Commission are affirmed.

          BALMER, C. J.

         This case requires us to determine the standard of liability for violations of two provisions of the hazardous waste laws: 40 CFR section 263.20(a)(1), as adopted by OAR 340-100-0002(1), which prohibits a transporter from accepting hazardous waste without a proper manifest form, and ORS 466.095(1)(c), which prohibits operating a hazardous waste treatment site without a proper permit. The Department of Environmental Quality (the department) assessed civil penalties against petitioner, Oil Re-Refining Company (ORRCO), after it determined that ORRCO had accepted hazardous waste without a proper manifest form and treated hazardous waste without a proper permit. ORRCO conceded the factual basis for those allegations but asserted a reasonable-reliance defense-namely, that it reasonably relied on assurances by the generator of the waste that the material ORRCO transported and treated was not a hazardous waste, and, therefore, did not require the manifest and permit at issue. The Environmental Quality Commission (the commission) refused to consider ORRCO's defense, because it interpreted the relevant provisions as imposing a strict liability standard. The Court of Appeals agreed with the commission's interpretations and affirmed its final order finding various violations and imposing civil penalties.[1]

         On review before this court, ORRCO argues that the commission should have considered its reasonable-reliance defense and that the commission had erred in interpreting the relevant provisions as imposing a standard of strict liability. We reject ORRCO's argument because it ignores statutory and regulatory context indicating that a transporter's or operator's level of culpability is immaterial to establishing a violation of the relevant provisions. We therefore affirm the commission's final order.

         I. BACKGROUND

         The parties do not dispute the facts found by the commission. In or around January 2004, Absorbent Technologies, Inc. (ATI) wanted to discard waste that resulted from its process for making a starch-based soil amendment. In that process, ATI used methanol to extract water from a starch mixture. That resulted in a water/methanol product, which ATI reused to remove water from subsequent loads of the starch mixture. Each additional use increased the concentration of water in the water/methanol product. Eventually, ATI determined that the concentration of water became too high to effectively remove water from loads of the starch mixture. At that point, ATI wanted to discard the resulting water/methanol waste and asked ORRCO to treat it.

         ORRCO operated a waste treatment and disposal facility in Portland, subject to a facility management plan approved by the department. Under that plan, ORRCO treated and disposed of certain wastes that fell outside the legal definition of hazardous waste. ORRCO did not have the permit required to operate a facility that treats, stores, or disposes of hazardous waste. See ORS 466.095(1) (requiring a permit to treat, store, or dispose of hazardous waste).

         In general, ORRCO would not accept waste shipments to its facility until after it ran a number of tests used to detect potential hazardous wastes, including tests to detect the halogen level, pH level, and ignitability of the material. Although it is unclear whether ORRCO performed those tests in this case, ORRCO determined that it could treat ATI's water/methanol waste after sending personnel to tour ATI's facility, receiving an explanation of ATI's manufacturing process, and reviewing paperwork completed by ATI, which described the halogen levels, pH levels, and ignitability of ATI's shipments.

         From January to March 2004, ATI delivered seven shipments of its water/methanol waste to ORRCO's facility. The accompanying paperwork-in addition to describing the waste as a mixture of water and methanol-showed potentially hazardous halogen levels and ignitability. And the paperwork for one shipment showed a potentially hazardous pH level. Further, ATI noted in the paperwork that the water/methanol waste had not been mixed with any other solvents or hazardous wastes, although the paperwork does not state whether the waste itself is a solvent and whether it is hazardous. ORRCO accepted six of the seven deliveries, rejecting only the delivery that showed a high pH level. For each of the six deliveries that it accepted, ORRCO treated the water/methanol waste by burning it for fuel recovery.

         After receiving those six deliveries from ATI, ORRCO began picking up the water/methanol waste from ATI's facility and transporting it back to its own facility for treatment. From July to September 2004, ORRCO transported and treated three shipments of ATI's water/methanol waste. Although ATI again provided ORRCO with paperwork describing the characteristics of the material being shipped, ATI did not provide ORRCO with the manifest form required to transport hazardous waste. See 40 CFR § 263.20(a)(1), as adopted by OAR 340-100-0002(1) (imposing the manifest requirement).

         In 2005, the United States Environmental Protection Agency (EPA) opened an investigation into ATI. That EPA investigation later led the department to investigate ORRCO. In September 2009, after completing its investigation, the department issued a Notice of Civil Penalty Assessment and Order to ORRCO, alleging three violations of the manifest requirement in 40 CFR section 263.20(a)(1), as adopted by OAR 340-100-0002(1), and nine violations of the permit requirement in ORS 466.095(1)(c). ORRCO requested an administrative hearing, which was held in December 2010 before an administrative law judge (ALJ).

         At the hearing, ORRCO did not contest the basic facts that it transported and treated the water/methanol waste without a manifest or permit. ORRCO, however, presented numerous legal arguments, including arguing that the water/methanol waste was not a hazardous waste and therefore did not trigger the manifest and permit requirements. Further, ORRCO claimed that, even if the waste was hazardous and the manifest and permit requirements applied, it did not violate either requirement because it reasonably relied on the information provided by ATI- information that, according to ORRCO, suggested that the water/methanol waste was not hazardous.

         The ALJ issued a proposed order, which became the commission's final order. As an initial matter, the commission determined that the water/methanol waste was a hazardous waste, which subjected ORRCO to the manifest and permit requirements. Although the commission concluded that ORRCO relied on information that ATI had provided, the commission never reached the question of whether that reliance was reasonable-that is, whether the information ATI provided actually suggested that the water/ methanol waste was not hazardous and, if so, whether ORRCO had reason to believe that ATI's information was incorrect. The commission never reached that question, because it interpreted both the manifest requirement and the permit requirement as imposing strict liability standards, thus making ORRCO's reliance irrelevant to liability. The commission reached that determination because neither requirement specified a particular mental state. As a result, the commission held ORRCO strictly liable for three violations of the manifest requirement in 40 CFR section 263.20(a)(1), as adopted by OAR 340-100-0002(1), and nine violations of the permit requirement in ORS 466.095(1)(c). For those violations, the commission assessed against ORRCO a civil penalty of $118, 800.

         ORRCO sought review in the Court of Appeals. Before that court, ORRCO did not dispute the commission's findings of fact nor did it contend that the water/methanol waste it transported and treated was not a hazardous waste. Instead, ORRCO argued only that the commission erred by interpreting the manifest and permit requirements to impose strict liability. The Court of Appeals affirmed the commission's order and its interpretations. Oil Re-Refining Co. v. Environmental Quality Comm.. 273 Or.App. 502, 504, 361 P.3d 46 (2015).

         ORRCO petitioned this court for review, which we granted. On review, ORRCO reasserts the argument it presented to the Court of Appeals-namely, that the manifest and permit requirements should not impose liability on parties who reasonably rely on assurances from the generator that the waste was not hazardous.[2]

         II. ANALYSIS

         A. Law Governing Hazardous Waste

         We begin by placing the manifest and permit requirements within the broader legal framework that governs hazardous waste. Hazardous waste is subject to overlapping state and federal authority. At the federal level, the EPA has promulgated rules implementing the federal Resource Conservation and Recovery Act (RCRA), which amended the Solid Waste Disposal Act, 42 USC sections 6901 to 6992K. Those rules establish criteria for identifying waste as "hazardous waste." If waste is hazardous, it is subject to much stricter requirements than those for nonhazardous waste. See City of Chicago v. Envtl. Def. Fund, 511 U.S. 328, 331-32, 114 S.Ct. 1588, 128 L.Ed.2d 302 (1994) (so stating). As it relates to hazardous waste, the EPA has promulgated cradle-to-grave regulations governing handlers of hazardous waste at each stage in its life cycle: waste generators, waste transporters, and owners and operators of waste "treatment, storage, or disposal facilities, " known as TSD facilities.

         At the state level, hazardous waste is governed by state-run hazardous waste programs authorized by the EPA. 42 USC § 6926(b). The EPA has authorized Oregon to administer its own hazardous waste program, which it does through the commission and the department. ORS 466.086. Under Oregon's program, the department administers, enforces, and implements Oregon's hazardous waste program, and the commission adopts rules and issues orders relating to the hazardous waste program. ORS 466.015; ORS 466.020.

         Federal law requires Oregon's program to be at least as stringent as the EPA's RCRA hazardous waste program. 42 USC §§ 6926(b), 6929; see generally 40 CFR part 271 (imposing standards for state programs). To comply with that requirement, the commission has adopted by reference broad categories of EPA regulations "governing the management of hazardous waste, including its generation, transportation, treatment, storage, recycling and disposal [.]" OAR 340-100-0002(1). Consequently, the commission and the department generally apply the EPA's RCRA rules unless Oregon law, by statute or rule, modifies a rule or specifies some more stringent standard. Id.; see, e.g., OAR 340-100-0002(2) (excluding specific EPA rules not at issue in this case). The substance of Oregon's program, therefore, follows the federal cradle-to-grave standards that apply to generators, transporters, and TSD facilities. See ORS 466.068 -466.225 (statutes governing hazardous waste); see also ORS 466.086(2) (authorizing the commission to adopt, amend, or repeal rules necessary to obtain and implement a state RCRA program).

         The manifest and permit requirements at issue in this case are components in the cradle-to-grave approach required by RCRA. That approach begins with regulations requiring waste generators to determine whether the waste is a solid waste subject to RCRA. If it is, then the generator must determine whether the solid waste is a hazardous waste. 40 CFR § 262.11. Some solid wastes are hazardous because they exhibit characteristics defined as hazardous by the EPA. Other solid wastes are hazardous because the EPA has specifically listed them as hazardous, regardless of the characteristics that they exhibit.

         If the generator intends to treat, store, or dispose of its hazardous waste on site, then the generator must obtain a permit to operate a TSD facility. See 42 USC § 6925(a) (requiring the EPA to promulgate regulations requiring permits); ORS 466.095(1)(c) (requiring permits for TSD facilities). Obtaining a permit subjects a facility to "the very strict, complex and expensive regulatory requirements of RCRA and parallel state laws." Michael B. Gerrard ed., 4A-29 Environmental Law Practice Guide § 29.05 (2015). Regulations govern the manner in which TSD facilities engage in specific operations and impose recordkeeping and emergency planning requirements. Id. A generator can avoid those requirements by shipping its hazardous waste to a TSD facility that already has the appropriate permits.

         Shipping hazardous waste raises a host of regulatory requirements intended to track the waste and to protect human health and the environment. Regulations aim to protect human health and the environment by ensuring that the waste is transported safely from the generator to the TSD facility. As a result, if a generator intends to ship hazardous waste to an off-site TSD facility, then the generator is subject to a number of pretransport requirements that address the packaging, labeling, marking, and placarding of the waste. 40 CFR §§ 262.30-262.33. Further, a transporter must report discharges of hazardous waste that occur during the shipment. 40 CFR § 263.30.[3]

         Regulations also require tracking hazardous waste through a manifest system. The generator is responsible for preparing a manifest form by characterizing the waste's quantity, origin, and composition and identifying the intended route of the waste through registered transporters to the TSD facility that will treat, store, or dispose of it. 40 CFR § 262.20(a)(1). The generator provides copies of the manifest to the transporter. The transporter is prohibited from accepting hazardous waste without a manifest. 40 CFR § 263.20(a)(1). Signed copies of the manifest are created each time hazardous waste is transferred from one handler to another. After accepting hazardous waste, the transporter is generally required to deliver the waste to the next designated transporter or to the TSD facility listed on the manifest. 40 CFR § 263.21(a). TSD facilities receiving shipments of hazardous waste must compare the shipment to the descriptions contained on the manifest and provide proof of receipt to both the transporter and the generator. The manifest system "provides accountability ...


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