INSIGHT: Five Litigation ‘Hot Spots’ That Escalate the Stakes Under TSCA

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We’ve seen a historic upswing in private actions aimed at the Toxic Substances Control Act since it was updated by the Frank R. Lautenberg Chemical Safety for the 21st Century Act, Pub. Law No: 114-182 (June 22, 2016). Prior to this, litigation stemming from TSCA has been modest compared with other federal environmental laws.

Things have changed. The 2016 amendments moved TSCA out of the backwater of environmental litigation. This article discusses five “hot spot” areas that target some ambiguities with the new law and assume an enforcement role.

How TSCA Changed in 2016

TSCA is the primary federal law governing the review and management of existing and new industrial chemicals in the U.S. that are not otherwise regulated (15 U.S.C. 2602(2)). The definition of a “chemical substance” subject to TSCA excludes pesticides when formulated and distributed as such (pesticide intermediates are subject to TSCA prior to being incorporated into a pesticide) as well as food, drugs, and cosmetics. Notable changes include the following.

TSCA Inventory. After almost 40 years, no one knew how many of the 85,000 plus chemicals on the TSCA Inventory were in commerce. To find out, Congress required chemical companies to report the chemicals they made or brought into the U.S. from June 21, 2006 to June 21, 2016. (EPA, Final Rule TSCA Inventory Notification (Active-Inactive) Requirements, 82 Fed. Reg. 37520 (Aug. 11, 2017)). So far, about half of the listed chemicals have been reported. After the updated Inventory is published next year, companies will need to notify the EPA before an inactive chemical is commercialized.

New Chemicals. New language in the statute requires the EPA to regulate based on insufficient information alone. This means that new chemical reviews begin from a presumption of risk rather than safety, unless data prove otherwise. The statute doesn’t require a minimum data set, and the EPA must consider all known, intended, and reasonably foreseen conditions of use. Up to 80 percent of new chemicals are being regulated, which may include testing, bans on water discharge, and personal protection equipment.

Existing Chemicals. To address the thousands of chemicals in use today, amended section 6 of TSCA replaces an ad hoc program of existing chemical reviews, which over the years was characterized by shifting expectations and almost no progress. The EPA is on a mandated schedule with minimum throughputs to prioritize and evaluate existing chemicals.

User Fees. Companies are required to help pay for EPA reviews and the amount and types of fees are going up. (EPA, Proposed Rule, User Fees for the Administration of the Toxic Substances Control Act, 83 Fed. Reg. 8212 (Feb. 26, 2018)). A risk evaluation of an existing chemical will entail multi-million dollars in fees for affected industries. Small businesses (revenues of $91 million or less) stand to pay 10 percent of the assessed fees.

PBTs. In the coming months, a small business review panel will weigh in on the five chemicals on the 2014 EPA Work Plan that scored high for persistence, bioaccumulation, and either high or moderate for both. They include two flame retardants that EPA identifies are used in consumer products (Decabromodiphenyl ethers (DecaBDA) and Phenol, isopropylated, phosphate (3:1) (iPTPP)). EPA is only required to complete a use and exposure assessment prior to proposing a risk management rule for these chemicals. The agency’s assessment must be completed by mid-2019.

Confidential Business Information (CBI). Trade secret rules are expected that will govern the EPA’s mandatory review of CBI claims for chemicals on the confidential TSCA Inventory and establish unique identifiers for them under which nonconfidential information will be grouped.

Fines. The updated TSCA includes a new felony endangerment provision, which states: “Any person who knowingly and willfully violates any provision … and who knows at the time of the violation that the violation places an individual in imminent danger of death or serious bodily injury, shall be subject on conviction to a fine of not more than $250,000, or imprisonment for not more than 15 years, or both.” Organizations that violate this provision can be subject to a fine of up to $1 million.

The Five TSCA Litigation ‘Hot Spots’

TSCA cases arise in three ways.

First, enforcement cases are brought by the government directly. Second, citizen suits can be brought by the public to compel actions by the government. Third, citizens can pursue litigation against private parties as available by law.

The primary source of the litigation momentum in relation to TSCA right now is the challenges to EPA’s implementing rules pending in the Second, Ninth, and D.C. Circuit Courts of Appeals and citizens’ suits against private companies and the government to enforce TSCA. Other emerging areas to watch are changes in government enforcement, reverse FOIA suits and any efforts to apply the False Claims Act in the context of TSCA, given the possibility of treble damages. These “hot spots” are discussed below in turn.

1. EPA’s Rules for TSCA Implementation and Existing Chemical Reviews. As EPA seeks to implement TSCA, environmental advocates already have filed lawsuits to change the rules. The three main lawsuits that have been filed are spread across the map and advancing simultaneously. This will result in several interpretive “shots across the bow” in rapid succession, followed by program adjustments, if any, that are necessary as a result. In the Ninth Circuit, key aspects of EPA’s rules for the prioritization and risk evaluation of existing chemicals are under challenge, including how the EPA administers the term “conditions of use” Alliance of Nurses for Healthy Environments v. EPA, Safer Chemicals, Healthy Families v. EPA. In the D.C. Circuit, the way in which EPA is allowing companies to continue CBI claims for chemical identities on the Inventory is under review, among other issues in Environmental Defense Fund v. EPA. The Second Circuit challenge Natural Resource Defense Council v. EPA suggests the need for an air-tight, lockstep process to regulate new chemicals that will create commercial delays on the order of years. Beyond the framework rules, the EPA must take on a minimum of 40 more chemicals by the end of 2019. This work is in addition to the 10 chemical evaluations it has underway, the risk management actions for five priority PBTs the agency is required to initiate, and industry-sponsored risk evaluations for two other priority PBTs.

The relevant rulemakings are the EPA’s final Procedures for Prioritization of Chemicals for Risk Evaluation under the Toxic Substances Control Act, and the final Procedures for Chemical Risk Evaluation under the Amended Toxic Substances Control Act. The difference between a “high priority” designation and a “low priority” designation for risk evaluation in this process is significant: The former may disrupt longstanding product makeups. As this activity builds, legal challenges will mount based on missed deadlines and disagreements over final agency actions.

2. Citizens’ Suits to Enforce TSCA. The citizens suit provisions in TSCA allow two types of actions. First, citizens or environmental groups can bring lawsuits against alleged violations of TSCA by industry. Friends of the Earth v. Laidlaw Envtl. Servs. found that wholly past violations may not be the basis for citizens suits unless such violations are reasonably expected to occur in the future. Second, citizens’ suits are brought to compel the EPA to carry out a “nondiscretionary duty” under TSCA. Recent examples include:

  • In 2017, health groups informed chemical companies of their intent to sue for the failure to report the importation of asbestos and n-propyl bromide under TSCA’s Chemical Data Reporting rule. The evidence used to support the alleged failures to report were characterized as “publicly available.”
  • The Ninth Circuit has ordered the EPA to propose new standards for lead dust in A Community Voice et al. v. EPA. The case could be a model for future suits to force updates of other chemical control policies.
  • The EPA was found to have unduly delayed implementation of the TSCA formaldehyde emissions standards for composite wood products, and was ordered to make the rule effective this June in Sierra Club and Community Voice – Louisiana v. Scott Pruitt.
  • A decision by a California district court is allowing a citizens’ petition for rulemaking to move forward that urges the EPA to ban fluoride in drinking water under TSCA in Food & Water Watch Inc. et al. v. EPA.

3. Federal Enforcement. TSCA is not a state-delegated environmental program, so government-initiated lawsuits to compel compliance are confined to the federal level. TSCA civil penalties for manufacturing in violation of section 5 of the Act, or failing to report significant risk information under section 8(e), are as high as $37,500 per day and can accumulate to an extraordinary degree.

The EPA reached a $10.25 million settlement with DuPont in 2005 in significant part for the failure to report monitoring data demonstrating the presence of PFOA in the bloodstreams of exposed pregnant female employees (Memorandum from G. Nakayama, General Counsel, EPA to Environmental Appeals Board, Consent Agreement and Proposed Final Order to Resolve Dupont’s Alleged Failure to Submit Substantial Risk Information under the Toxic Substances Control Act (TSCA) and Failure to Submit Data Requested under the Resource Conservation and Recovery Act (RCRA) (Dec. 14, 2005)).

TSCA’s criminal provisions are rarely employed and the new endangerment provision is yet untested. Seizures under TSCA are rare also, but the EPA is more aggressively exercising its subpoena authority and with greater frequency. In addition, companies that report to the EPA must be cognizant of potential criminal prosecution for false statements under 18 U.S.C. § 1001. Although such prosecutions often involve false statements made during criminal investigations or proceedings, false statement violations can arise in other contexts involving government agencies. For example, because companies must identify their intended conditions of use in a premanufacture notice, undertaking a non-disclosed use of a new chemical immediately after EPA’s review is completed may be actionable under this provision.

Under the current administration, we may see deliberate and targeted initiatives to enforce egregious violations of the law, with a heightened risk of criminal enforcement proceedings under TSCA. The Department of Justice’s Environmental and Natural Resources Division lists worker safety crimes as one of its top prosecutorial priorities, and TSCA sections 3, 5, 6, and 9 give the EPA ample authority to regulate chemical exposures in the workplace and enforce against consent order violations in this area.

4. Private Party False Claims Act Actions. While TSCA authorizes citizens suits against private parties, section 20 doesn’t restrict any right available under another statute or common law to seek enforcement or other relief. TSCA’s amendments may open the door to liability under the False Claims Act (FCA) 31 U.S.C. § 3729(a)(1)(A). The FCA allows a private individual—referred to as a relator—to bring suits, on behalf of the government, involving fraudulent claims for payment submitted to the U.S. The FCA also includes a “reverse claim” provision, which imposes liability on individuals who use a false statement or representation to avoid a payment owed to the U.S. Recent cases have explored the intersection of the FCA and the TSCA.

Two FCA reverse claim lawsuits have been brought by individuals against chemical companies, in one case by a former employee, alleging the failure to report risk or release information to the EPA as TSCA requires. The cases are United States ex rel. Simoneaux v. E.I. duPont de Nemours & Co. United States ex rel. Kasowitz Benson Torres LLP v. BASF Corp. In both cases, the court granted the defendant’s motion to dismiss on the ground that the FCA does not cover unassessed penalties, which depend entirely on future government action and discretion.

Once the EPA finalizes its proposed user fees, however, such opportunities will only increase as the plaintiff’s bar will likely argue that failing to pay the appropriate user fee constitutes a reverse false claim. With the possibility of treble damages, the plaintiff’s bar has proven itself creative in crafting FCA complaints in other industries involving assessed or structured fee systems. There are numerous FCA reverse claim lawsuits relating to an importer’s avoidance of predetermined customs duties.

5. CBI Claims Under Freedom of Information. TSCA e-reporting and Freedom of Information Act (FOIA) response information that is made public includes environmental data voluntarily disclosed by companies, which can be mined for purposes of litigation. While FOIA/CBI litigation may pose less direct costs on the impacted company as there are no civil penalties or damages, the competitive damage could be significant if information critical to a company’s market presence is inappropriately released to a competitor or the public.

Data provided to potential private litigants could form fodder and evidence for the litigation types discussed above. Existing FOIA law allows private parties to sue the government to try to force disclosure of information they seek if the agency denies access. The D.C. Circuit challenge to the CBI provisions of the EPA’s Inventory Reset rule suggests that environmental advocates recognize the importance of limiting the protection afforded to company data.

Future Considerations

David was equipped with only five pebbles when he killed the giant Goliath. These five litigation areas will change the TSCA dynamic as the EPA’s priorities are forced in different, competing directions by the courts. Ingredient manufacturers and importers to a lesser extent may find many of these areas familiar ground. However, increasingly under the new law, downstream product manufacturers have obligations to act affirmatively, and may be held accountable under TSCA.

As a result, TSCA is no longer the exclusive domain of ingredient manufacturers, and there are many ways in which the supply chain will need to engage—or face being engaged. Private parties that seek to enforce TSCA are well-financed, fueled in part by “doomsday” fundraising, an expanded toolbox of new rules to challenge, and sympathetic lower courts. Two of the organizations leading the challenge against the EPA’s three TSCA framework rules are mentioned in an article entitled, “The 6 Best Environmental Groups to Donate to for a Better World”, Dec. 28, 2016. How the last presidential election served as a fundraising tool is publicly documented in articles such as “Trump Helps Drive Donations to Environmental Groups”, Feb. 9, 2017.

In closing, the new TSCA law implicates companies across a wide range of industries. Companies and their counsel should closely evaluate their obligations, engage the supply chain, monitor EPA rulemakings related to risk evaluations for “high priority” chemicals, and learn to recognize those areas that carry heightened potential for civil and criminal liability.

Martha E. Marrapese and Roger H. Miksad are partners in Wiley Rein LLP’s Consumer Product Regulation and Environment & Safety practices. Marrapese has earned a global reputation for her work with companies with industrial biotechnology and nanotechnology platforms and is a recognized authority on chemical regulation and premanufacture approval under the evolving Toxic Substances Control Act. Miksad counsels clients on a broad range of health and safety related regulatory matters before the Environmental Protection Agency, the Occupational Safety and Health Administration, the Consumer Product Safety Commission, and the Federal Trade Commission, among others. P. Nicholas Peterson is of counsel in the firm’s White Collar Defense & Government Investigations and Consumer Product Regulation practices. Peterson represents clients on a wide range of litigation, transactional, and regulatory matters with a particular focus on the government contracting, environmental, and consumer product industries. Vesna Harasic-Yaksic is an associate in the firm’s White Collar Defense & Government Investigations Practice. She represents corporate clients and their executives in government and internal investigations, civil enforcement matters and criminal investigations alleging false claims, financial institution fraud, securities fraud, health care fraud, money laundering, and public corruption.

The opinions expressed here do not represent those of Bloomberg Environment, which welcomes other points of view.

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