Citgo Wastewater Discharge Penalty Increased to $81 Million

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By Lars-Eric Hedberg

Dec. 28 — On remand, a federal district court has increased a Clean Water Act penalty against Citgo Petroleum Corp. from $6 million to $81 million for the 2006 failure of two wastewater storage tanks at the company's Lake Charles, La., refinery (United States v. CITGO Petroleum Corp., 2015 BL 423423, W.D. La., No. 08-cv-00893, 12/23/15).

Judge Richard T Haik Sr. of the U.S. District Court for the Western District of Louisiana concluded in his Dec. 23 reasons for judgment that “[g]iven the seriousness of this incident, the long range impact it had on the environment and Lake Charles area, and all of the factors outlined above, an appropriate penalty belongs in a significantly higher range.”

After a rainstorm caused the storage tanks to fail, sending over 2 million gallons of oil into nearby waterways and damaging marsh habitat, the U.S. and Louisiana filed an action against Citgo Petroleum Corp. for civil penalties and injunctive relief.

Citgo did not contest liability, and the district court held a bench trial on damages.

The court found that Citgo failed to properly maintain the tanks and allowed sludge and waste oil to accumulate, reducing their stormwater capacity and thereby violating Citgo's operating procedures. It also found that Citgo discharged more than 30 million gallons of oily wastewater into a surge pond and had, according to disclosures, nearly 1,000 days of permit exceedances.

It ruled that these failures rose to ordinary negligence, rather than, as the U.S. contended, gross negligence and entered a $6 million civil penalty.

The U.S. appealed and the U.S. Court of Appeals for the Fifth Circuit vacated the civil penalty and remanded the case to the district court. It held that the district court “discounted the seriousness” of Citgo's conduct and failed to quantify the corporation's economic gain due to its unlawful conduct (United States ex rel. Adm'r of EPA v. Citgo Petroleum Corp., 723 F.3d 547, 77 ERC 1017 (5th Cir. 2013)).

Gross Negligence, $81 Million Penalty

On remand, Citgo argued that the amount of economic benefit ranges from $719 to $14.7 million, and the U.S. argued the amount of economic benefit is $114.2 million.

The court first found that “[i]n a state like Louisiana, where heavy rain in a common occurrence, failing to take adequate measures to prevent a tragedy such as this, with the knowledge Citgo had in its possession, rises to the level of gross negligence.”

Based on its conclusions that the benefit Citgo derived is closer to the U.S. estimate and Citgo acted with gross negligence, the court “held a per barrel penalty amount of $1,500.00 per barrel, for 54,000 barrels, is reasonable and adequately addresses the seriousness of this incident” and imposed a $81 million penalty.

Section 311(b)(7)(D) of the Clean Water Act authorizes a penalty of up to $3,000 per barrel for gross negligence—greater than the strict liability amount of $1,100 per barrel.

In addition to the penalty, all injunctive relief and other findings contained in the September 2011 judgment stand, according to the court (United States v. CITGO Petroleum Corp., 2011 BL 399898, W.D. La., No. 08-cv-00893, 9/29/11).

Citgo had previously paid a $13 million criminal penalty.

Citgo declined to comment on the penalty.

The Department of Justice represents the U.S.

Barrasso Usdin Kupperman Freeman & Sarver, New Orleans, and Norton Rose Fulbright, Houston, represent Citgo.

To contact the reporter on this story: Lars-Eric Hedberg at lhedberg@bna.com

To contact the editor responsible for this story: Larry Pearl at lpearl@bna.com