LEGAL CONSIDERATIONS 1
U. S. DOJ Policy
On July 1, 1991, the U.S. DOJ issued a document entitled “Factors in Decisions on Criminal Prosecutions for Environmental Violations in the Context of Significant Voluntary Compliance or Disclosure Efforts by the Violator.” This document de- scribes the factors that the U.S. DOJ considers in deciding whether to prosecute a business or individual for an environmental violation. The document contains a broad policy statement by the U.S. DOJ that it encourages self-auditing, self-policing, and voluntary disclosure of environmental violations by the regulated community. Ac- cording to the document, these activities are viewed by the U.S. DOJ as mitigating factors in the U.S. DOJ’s exercise of criminal enforcement discretion. However, the document only provides general guidelines for the U.S. DOJ and does not afford the regulated community any specific comfort that in a particular case, the U.S. DOJ will not proceed with a criminal prosecution notwithstanding the presence of a vig- orous environmental self-evaluation program.
PROTECTION OF THE CONFIDENTIALITY OF
ENVIRONMENTAL ASSESSMENTS UNDER EXISTING LAW Businesses that seek to protect the results of environmental assessments from dis- closure have typically invoked the attorney-client privilege and/or the work-product doctrine. In certain circumstances, these alternatives have insulated the results of an environmental assessment from disclosure. However, neither the attorney-client privi- lege nor the work-product doctrine provides a reliable mechanism for protecting environmental assessments in all circumstances.
Attorney-Client Privilege
The attorney-client privilege has long been recognized as a means to foster the full and free disclosure of information between clients and attorneys. As a policy matter, it is generally recognized that clients should have the ability to speak freely with their attorneys without the fear that such communications will later be disclosed and potentially used against them. Generally, the attorney-client privilege is estab- lished where legal advice of any kind is sought from an attorney in the attorney’s capacity as such and where the client makes the communication in confidence. Such a disclosure is entitled to confidential treatment under the attorney-client privilege provided the protection is not waived.4
For a communication to be protected by the attorney-client privilege, it must meet a variety of requirements. For example, the communication between the client and the attorney must be for the purpose of obtaining legal advice. Communications directed to an attorney for other purposes such as monitoring ongoing activities or soliciting business advice may not be subject to protection. Moreover, the commu- nication must have been made in confidence (generally outside the presence of third parties) and made by the client. The privilege may also be lost if appropriate steps are not taken to prevent the waiver of the privilege by disclosure of the communica- tion to a third party. Communications made to non-attorneys may be protected if the person to whom the communication is made is under the direction and control of an attorney and the communication is offered to facilitate obtaining legal advice from that attorney. For example, a communication made to an environmental consultant under the direction and control of an environmental attorney for purposes of assist- ing the attorney in rendering legal advice would likely be protected under the attor- ney-client privilege as long as the other requirements for the privilege were satisfied.5
Courts interpreting the attorney-client privilege have often differentiated be- tween communications, which are protected, and underlying facts, which are not.
This distinction can become extremely problematic in the environmental context.
For example, sampling data cannot be protected, but the evaluation of the data or a discussion of the potential sources of the contamination may be protected. Gener- ally, however, a client cannot insulate from disclosure an underlying fact within his or her knowledge merely because it was communicated to an attorney even though the contents of the discussions with the attorney are subject to protection.
4 See generally Swidler & Berlin v. United States, 118 S.Ct. 2081 (1998); Upjohn Co. v. United States, 449 U.S. 313 (1981); Montgomery County v. Microvate Corp., 175 F.3d 296 (3d Cir. 1999).
5 Olson v. Accessory Controls and Equipment Corporation, 254 Conn. 145, 757 A.2d 14 (2000);
Consolidated Rail Corporation v. Pennsylvania Department of Environmental Protection, 1999 EHB 204 (1999), and Andritz Sprout-Bauer, Inc. v. Beazer East, Inc., 174 F.R.D. 609 (M.D. Pa. 1997).
In order to maximize the probability that a court would find the results of an environmental assessment to be protected by the attorney-client privilege, the busi- ness conducting the assessment must ensure that the assessment is structured to meet the legal prerequisites and standards. This can significantly encumber the in- vestigative process to the point where, in some instances, the benefits to be obtained from the assessment may be limited by the constraints placed on the investigative process. For example, the assessment typically should be controlled by outside coun- sel with authority to direct the inquiries made and to assimilate the responses ob- tained. Confidentiality must be maintained at each step of the way and the assess- ment must be structured to ensure that its focus is the provision of legal advice to the business being evaluated. Technical personnel assisting in the assessment must per- form their duties under the direction and control of the attorneys running the assess- ment. While each of these safeguards may serve to encumber the process, it is obvi- ous that they cannot be superimposed on the audit results after the fact.
Work-Product Doctrine
The work-product doctrine offers a second potential avenue for protecting the re- sults of an environmental assessment. Under the work-product doctrine, the mental impressions, conclusions, opinions, and legal theories concerning actual or antici- pated litigation of an attorney or other representative of a party are generally subject to a qualified immunity from discovery. Unlike the attorney-client privilege, this immunity may be overcome by a showing of sufficient need.
The principles supporting the work-product doctrine were articulated in Hickman v. Taylor, 329 U.S. 495 (1947) and have been incorporated into Fed. R. Civ. P. 26(b)(3), which provides in pertinent part as follows:
[A] party may obtain discovery of documents and tangible things otherwise dis- coverable . . . and prepared in anticipation of litigation or for trial by or for another party or by or for that other party’s representative (including the other party’s attorney, consultant, surety, indemnitor, insurer or agent) only upon a showing that the party seeking discovery has substantial need of the materials in the preparation of the party’s case and that the party is unable without undue hardship to obtain the substantial equivalent of the materials by other means. In ordering discovery of such materials when the required showing has been made, the court shall protect against disclosure of the mental impressions, conclusions, opinions, or legal theories of an attorney or other representative of a party con- cerning the litigation.
The work-product doctrine is limited in that it applies only to work performed
“in anticipation of litigation.” Accordingly, in the absence of litigation or antici- pated litigation, the work-product doctrine does not offer protection to environmen- tal assessments.
Even when an environmental assessment is conducted “in anticipation of litiga- tion,” it generally cannot be used to protect underlying facts, but only the conclu- sions and impressions to be drawn from those facts. To be protected under the work- product doctrine, the primary motivating purpose for collecting information or generating a report must be to assist in actual or anticipated litigation. Routine in- vestigations conducted in the ordinary course of business generally do not meet this standard. Accordingly, if a business routinely conducts environmental assessments to determine whether it is in compliance, those assessments are likely not protected under the work-product doctrine. By contrast, if a business waits until an enforce- ment action or citizens’ suit is threatened or pending before conducting an assess- ment and the assessment is used to help formulate a litigation strategy, the likeli- hood of protecting the assessment under the work-product doctrine improves.
The viability of using the attorney-client privilege or the work-product doctrine to protect the results of environmental assessments, including formal audits, suffers from the fact that neither the attorney-client privilege nor the work-product doctrine is designed specifically to achieve these ends. Instead, these mechanisms have been used, albeit somewhat imperfectly, to achieve a modicum of protection for environ- mental assessments conducted in certain circumstances and for certain purposes.
Because of the uncertainty as to whether these mechanisms will actually work in a particular situation, businesses have tended to err on the side of caution and operate under the assumption that environmental assessment reports may ultimately be re- quired to be disclosed.
Self-Evaluative Privilege
Over the past two decades, the courts have begun to recognize that in certain in- stances, it is sound public policy to encourage candid and frank self-evaluation leading to the identification and correction of internal problems. Accordingly, in certain instances, the courts have insulated reports and documents from disclosure relying on a concept called the “self-evaluative privilege” or the “critical self-analysis doc- trine.”
The self-evaluative privilege was first recognized in a medical malpractice case where a district court ruled that confidential hospital staff meeting minutes, recorded for the purpose of self-improvement, were entitled to a qualified privilege on the basis of the compelling public interest in facilitating peer review of physician per- formance. Bredice v. Doctor’s Hospital, Inc., 50 F.R.D. 249 (D.D.C. 1970), aff ’d, 479 F.2d 920 (D.C. Cir. 1973). Since that time, the self-evaluative privilege has been examined in other contexts, including auditing functions to enhance environ- mental compliance.
In Reichhold Chemicals, Inc. v. Textron, Inc., 157 F.R.D. 522, 39 E.R.C. 1328 (N.D. Fla. 1994), the court held that the self-evaluative privilege protected reports concerning retrospective analyses of past conduct, practices, and occurrences, and the resulting environmental consequences, as long as the reports were prepared for
the purpose of candid self-evaluation with the expectation that the reports would remain confidential and such confidentiality was in fact maintained. The court also found that the privilege was a qualified rather than an absolute privilege; it could be overcome by a showing of extraordinary circumstances or special need.
The court noted that the self-evaluative privilege was rooted in public policy considerations designed to allow individuals or businesses to candidly assess their compliance with regulatory and legal requirements without creating evidence that might be used against them by their opponents in future litigation. The court indi- cated that the privilege protects an organization or individual from the “Hobson’s choice” of aggressively investigating accidents or possible regulatory violations, ascertaining the causes and results, and correcting violations or dangerous condi- tions, but thereby creating a self-incriminating record that could be evidence of liability; or deliberately avoiding making a record on the subject (and possibly leav- ing the public exposed to danger) in order to lessen the risk of civil liability. The Reichhold Chemicals court applied a four-part test for determining whether to pro- tect self-evaluative materials from disclosure: (1) the information must result from a critical self-analysis undertaken by the party seeking protection; (2) the public must have a strong interest in preserving the free flow of the information sought; (3) the information must be of a type whose flow would be curtailed if discovery was allowed; and (4) the information must be generated with the expectation that it will be kept confidential and the information must be so maintained.
In contrast to the Reichhold Chemicals decision, certain other courts have taken a narrow view of the self-evaluative privilege in the context of environmental re- ports and documentation. In Koppers Company, Inc. v. Aetna Casualty and Surety Company, 847 F. Supp. 361, 364 (W.D. Pa. 1994), the court held that the self-evalu- ative privilege “does not apply a fortiori to environmental reports, records, and memo- randa. Indeed, we disagree that a corporation would face a Hobson’s choice be- tween due diligence and self-incrimination in the tightly regulated environmental context, for that context requires strict attention to environmental affairs. We doubt that today potential polluters will violate regulations requiring environmental dili- gence for fear of these documents being used against them tomorrow.”
In Grand Jury Proceedings, 861 F.Supp. 386 (D. Md. 1994), the court refused to protect audits conducted by a company to determine whether it was in compliance with requirements under the Food, Drug and Cosmetics Act. The court held that the results of such audits had to be produced in response to a grand jury subpoena. In reaching this decision, the court indicated that it was aware of no case in which the self-evaluative privilege had been applied to thwart a governmental request for docu- ments. If this aspect of the decision is followed, it may severely undercut the utility of the self-evaluative privilege as fashioned by the courts in the context of environ- mental audits.
STATE ENVIRONMENTAL AUDIT LEGISLATION AND POLICY
A number of states have intervened and adopted statutes recognizing the self-evalu- ative privilege for environmental assessments in light of the increasing utilization of environmental assessments to facilitate compliance with environmental requirements, the continuing concerns relating to the potential disclosure of the results of such assessments, and the mixed results that businesses and individuals have experienced in seeking to protect the results of environmental assessments under traditional com- mon law concepts. Typically, these statutes have been designed to cover formal voluntary environmental compliance audits and generally do not extend to health and safety audits.
In 1993, Oregon became the first state legislature to create a qualified privilege for voluntary environmental audits. The law was adopted as part of an omnibus environmental crimes package and the audit provisions were considered to be part of an overall systemic solution to the need to reform Oregon’s environmental re- quirements. Since Oregon took action other states have followed suit.
Self-evaluative privilege legislation at the state level has taken a variety of forms.
However, there are certain common threads evident in such legislation. Typically, such legislation addresses the following issues:
1. the types of activities and documents subject to the privilege;
2. the scope of the privilege;
3. the manner in which the privilege can be lost or waived;
4. the mechanisms for asserting the privilege; and
5. the protections, if any, to be afforded for reporting and correcting items of non- compliance.
Self-evaluative privilege legislation generally includes a series of provisions de- fining key terms such as “environmental audit” and “environmental audit report.”
These definitions can be extremely important in determining what types of informa- tion and documents are subject to the self-evaluative privilege. For example, a num- ber of statutes provide that an environmental audit must be a voluntary undertaking designed to evaluate the compliance status of facilities, activities, and/or manage- ment systems relating to those facilities or activities. In considering the definition of an “audit,” some have proposed that health and safety audits as well as environmen- tal audits be subject to the privilege. Generally, the narrower approach has been followed. Likewise, investigations of environmental conditions at particular parcels of property have typically not been covered by the definition of an environmental audit.
Self-evaluative privilege legislation almost invariably contains provisions delin- eating the scope of the protection afforded. For example, most but not all privilege laws expressly provide that reports generated by an environmental evaluation are neither discoverable nor admissible. The protections afforded such reports and re- lated documents have also been extended in certain instances to provide a testimo- nial privilege to protect persons involved in the evaluative process from testifying as to the results of the review. Most self-evaluative privilege legislation excludes cer- tain types of information from protection. For example, information that is other- wise required to be developed, maintained, reported, or made available to a regula- tory agency is typically not subject to protection. Similarly, information obtained by a regulatory agency through observation, sampling, or monitoring, or information obtained from an independent source, is generally not subject to protection.
Self-evaluative privilege legislation typically contains provisions specifying cer- tain conditions in which the privilege can be either lost or overridden. For example, as a general rule, the self-evaluative privilege will be lost if the privilege is asserted for a fraudulent purpose or if an audit or assessment reveals areas of noncompliance and corrective steps are not promptly initiated and pursued with reasonable dili- gence. In addition, in some instances, the self-evaluative privilege can be overrid- den upon a showing of compelling need for the results of the audit or assessment. In statutes that contain such a provision, it highlights the qualified nature of the privi- lege. In other instances, the privilege may be lost if an audit or assessment shows that a clear, present, and impending danger to public health or the environment exists. Most self-evaluative privilege legislation also provides for the waiver of the privilege, either by express action or by implication.
In some instances, self-evaluative privilege legislation contains “safe harbor”
provisions, which protect businesses and individuals from enforcement actions where the results of an audit or assessment show noncompliance with environmental re- quirements, steps are promptly taken to correct the noncompliance, and the non- compliance is reported. In essence, “safe harbor” provisions afford those that vol- untarily conduct environmental assessments, including formal audits, a measure of comfort that if they find areas of noncompliance, they can take steps to correct the problems and report the noncompliance to the government without running the risk that the self-discovered and self-reported violations will result in civil penalties or criminal sanctions.
PRACTICAL CONSIDERATIONS AND RECOMMENDATIONS FOR PERFORMING SELF-ASSESSMENTS
The overall benefits of performing regular environmental assessments are clear and the incentives created by the U.S. EPA, the U.S. DOJ, OSHA, and state govern- ments either in the form of legislation or policy, support the process. Below are a number of recommendations for optimizing these opportunities.
1. Any self-assessment should be carefully planned. It is essential that a company develops the assessment process with a full understanding of the available legal protections, whether they be audit policies, statutes, or common law privileges.
It will be impossible to retrofit the assessment to incorporate the procedures necessary to qualify for these legal protections. In planning the assessment, care should be taken to ensure that the assessment fits within the types of activities covered by the relevant policies. For example, if a regulated entity is setting up a compliance management system, it should overlay the Audit Policy definition and any key terms from state law or policy to ensure that all of the various components of the applicable definitions are being met.
2. The team of professionals who will be involved in the self-assessment should be identified beforehand and should include, at a minimum, a representative of the regulated entity with knowledge concerning the operations to be evaluated, a technical consultant (or in-house environmental staff person), and an environ- mental attorney. Input from each of these disciplines is quite important.
3. The time frames for disclosure set forth in the Audit Policy are short. Therefore, it is critical that the team of professionals conducting the assessment be kept directly apprised of the results of the assessment. Depending on the information generated by the assessment, there may be only a narrow window of time to evaluate the factual and legal predicates to determine whether a violation exists before disclosure may be necessary to preserve the benefits of the U.S. EPA’s or OSHA’s policy.
4. Depending on the circumstances, a regulated entity may wish to conduct assess- ments either in discrete phases or of discrete aspects of its operations. By divid- ing an assessment into “bite size pieces,” it may be easier to ensure that issues are identified and resolved in a timely and prudent fashion. There also may be less potential for creating paralysis of decision-making resulting from the iden- tification of a host of compliance problems in a single report. Finally, by sepa- rating the process into phases, it may be easier to separate “legal advice” from
“business advice” and thereby come within the attorney-client privilege.
5. The assessment team should understand the legal framework applicable to the operations being evaluated. For example, it is important to identify beforehand whether federal or state law (or both) provide the governing requirements. This may influence whether disclosure of any violations discovered should be made to the U.S. EPA, OSHA, and/or the state.
6. Before conducting an assessment, the regulated entity must be committed to addressing the issues that are likely to be identified. Performing an assessment and ignoring the results is likely to leave the regulated entity in a markedly worse set of circumstances than not performing the assessment at all.