A company negotiated a consent decree with EPA over Clean Air Act requirements applicable to diesel engines, and later a subsidiary not involved in the consent decree sought and received EPA approval to import diesel engines. A few years later, EPA sued that company, claiming the engines, most of which were never imported into the United States, violated the consent decree. A federal judge ordered $72 million in penalties.
That ruling was appealed, with the company arguing that the consent decree did not apply to this separate company, that most of the engines were never subject to EPA jurisdiction, and that ambiguous consent decrees should be strictly construed so as not to impose liability unless it is clearly encompassed by the agreement.
The NAM filed an amicus brief urging the appeals court to reverse. We argued that consent decrees like this involve companies that waive their right to contest whether a violation occurred and whether accelerated remedial action is authorized by law. Companies need the certainty that a settlement provides, and courts should not be able to broaden the terms of the settlement to impose penalties beyond those in the consent decree for actions not subject to the EPA regulations at issue. The trial court's ruling undermines the finality of consent decrees that motivates companies to substantially waive their rights under the law.
Consent decrees are a common settlement tool for businesses to achieve a clear and final resolution to enforcement actions whose outcome is uncertain for both the government and the regulated entity. They sometimes incorporate requirements that go beyond what the law requires or what the court could order without the agreement of the parties, as well as waiver of judicial review of debatable issues. Because of uncertain liability and draconian potential penalties, most regulated entities have little practical alternative but to "dance to the EPA's tune" and settle. Consequently, settlements must provide a clear and reliable understanding of what will be required, and courts must be careful to construe the agreements as written.
The trial judge decided to impose a sanction that was not explicitly excluded from the consent decree and was beyond what the law requires. On appeal, the D.C. Circuit affirmed, ruling that the consent decree applied to engines made at a plant owned by Volvo Powertrain, and that the amount of the fine was not an abuse of the court's discretion.