On December 14, 2012, the San Bernardino County Superior Court entered a Judgment Pursuant to Stipulation (“Judgment”) in People v. Foster Enterprises et al., San Bernardino Case No. CIVRS 1102120.  Under this Judgment, the Defendants agree to pay a civil penalty of $300,000 for 32 transportation refrigeration units (“TRU,” also known as “reefers”) that were allegedly not in compliance with California’s in-use performance standards.  The case is noteworthy because it is the first court-imposed fine issued under the California Air Resources Board’s (“CARB”) 2004 TRU rules.*  The Judgment highlights the need for additional compliance attention for owners and operators of TRUs, as well as other identified persons or entities that use or house TRUs.  CARB’s actions in this case suggest that TRUs are an increasing priority for CARB’s overall diesel enforcement strategy.

Regulatory Background

TRUs are mobile units, typically powered by diesel internal combustion engines, that are mounted on semi-trailers, shipping containers, and on rail cars to refrigerate perishable goods.  Although TRUs generally have only 25-50 horsepower engines, TRUs tend to congregate at distribution centers, rail yards, and other facilities.  TRUs emit diesel particular matter (“PM”).  CARB adopted an Airborne Toxics Control Measure for TRUs in 2004 as part of its Diesel Risk Reduction Program.  The TRU regulations are found in title 13 of the California Code of Regulations, section 2477.  October 2011 amendments to the 2004 regulations added requirements for “carriers,” “freight brokers and freight forwarders,” “California-based shippers,” “California-based receivers,” and “drivers” as those terms are specifically defined in the regulation.  (Cal. Code Regs., tit. 13, § 2477.2.)  The regulations create in-use performance standards for TRUs and set a compliance schedule based on the model year of the engine.  The compliance schedule is phased; for example, model year 2005 engines need to be in compliance by December 31, 2012.  If a TRU is non-complaint, CARB may cite owners, operators, etc., and assess civil penalties of $1,000, $10,000, or $40,000 per unit for each day of violation.

Foster Enterprises

Foster Enterprises is an Ontario, California-based TRU carrier.  Originally, CARB sought a lesser penalty for the company’s out-of-compliance TRU units.  However, CARB referred the matter to the California Attorney General for enforcement after failure to settle.  The state filed a complaint in San Bernardino County Superior Court in early 2011.  The Judgment resulted before trial.  CARB highlights in its press release that Foster Enterprises would not agree to settle with CARB early on in the process, resulting in a higher civil penalty.

The Judgment

The Judgment includes both injunctive relief and civil penalties and includes the following:  (1) Foster Enterprises and its principals (“Defendants”) are specifically barred from violating any applicable statute or regulation under CARB’s jurisdiction; and (2) CARB maintains the right to seek relief and judicial remedies for any future violations.

The significant portion of the Judgment is the civil penalty provision.  The Judgment assesses Foster Enterprises and its principals with a total $300,000 civil penalty.  However, $100,000 of the penalty is stayed so long as the defendants do not intentionally violate the permanent injunction for at least five years, and do not violate the payment conditions for the remainder of the civil penalty.  (Judgment at pp. 2-3.)

The Judgment also includes a Senate Bill (“SB”) 1402 statement.  (Judgment at p. 7.)  SB 1402, passed in 2010, requires CARB to provide information that demonstrates the basis for penalties that it seeks.  (Health & Safety Code, § 39619.7.)  Specifically, SB 1402 requires that CARB explain:

(1) The manner in which the administrative or civil penalty amount was determined, including the aggravating and mitigating factors the state board considered in arriving at the amount, and, where applicable, the per unit or per vehicle basis for the penalty.
(2) The provision of law or regulations under which the alleged violator is being assessed the administrative or civil penalty, including the reason that provision is most appropriate for that violation.
(3) Whether the administrative or civil penalty is being assessed under a provision of law that prohibits the emission of pollution at a specified level, and if so, a quantification of the specific amount of pollution emitted in excess of that level, where practicable.  This quantification may be based on estimates or emission factors.  (Health & Saf. Code, § 39619.7, subd. (a).)

The Judgment indicates that the penalty obtained for Foster Enterprises’ 32 TRU violations was $300,000.  This included a consideration of the maximum penalty of $1,000 per unit per day (which may rise to $40,000 if the violation is knowing).  The state states that it discounted this penalty because the “company and its principals are in financial distress.”  (Judgment at p. 8.)  The SB 1402 statement also indicates that the penalty was assessed for failure to comply with the TRU Air Toxic Control Measure and that the penalties were assessed based on the unique circumstances of the matter.  Specifically, it is an unique, case-by-case penalty analysis and “[p]enalties in future case [may] be smaller or larger on a per unit basis.”  (Judgment at p. 8.)  These statements, however, are all conclusory, and do not provide the “manner” in which the penalty was determined, or the “reason” the civil penalty is “most appropriate.”  The level of subjectivity applied in this case should cause continuing distress for all those potentially subject to the regulations.

CARB’s press release regarding the Judgment states:  “ ‘All business owners should pay attention to this case,’ said ARB Enforcement Chief Jim Ryden.  ‘This company actually had to pay twice – once to comply with the law, and then again as a penalty.  Had the owners complied originally, they would have saved us and themselves significant time and money, and helped to keep a level playing field for their colleagues and competitors.’ ”  The press release paints Foster Enterprises as a “bad actor” that failed to comply, and it could have mitigated the damages with early concession.  Although SB 1402 requires justification for CARB’s penalties, the stated factors are conclusory and inherently subjective.  Informed management is essential to navigate the enforcement process and mitigate potential penalties.

Conclusion and Implications

Regulation of TRUs as a component of CARB’s overall diesel PM strategy continues to increase, and the Foster Enterprises case highlights the negative financial and public relations implications of non-compliance.  New rules, effective January 1, 2013, extend TRU regulations not only to owners and operators, but also to others who have control over them.  Foster Enterprises apparently incurred increased civil penalties by refusing to settle early with CARB.  CARB’s press release underscores that the agency will actively enforce the TRU rules.  Potential liability for TRU non-compliance can be managed with careful, early planning.

* For more information on CARB’s TRU rules, see Somach Simmons & Dunn Environmental Law and Policy Alert by Michael E. Vergara and Richard S. Deitchman (Nov. 13, 2012) New Requirements for Transportation Refrigeration Units on California Highways and Railways.

For further information on People v. Foster Enterprises et al., TRUs, and CARB regulations, please contact Michael E. Vergara or Richard S. Deitchman at (916) 446-7979 or by email at mvergara@somachlaw.com or rdeitchman@somachlaw.com.

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