The U.S. Environmental Protection Agency (“EPA” or “Agency”) continues its enforcement focus on commercial refrigerant leaks from major retailers, keeping with the Agency’s goals of reducing leaks of ozone depleting substances (“ODS”) and greenhouse gas (“GHG”) emissions. On June 21, 2016, Trader Joe’s Company entered into a proposed settlement with the U.S. Department of Justice and U.S. Environmental Protection Agency (“EPA”) to resolve claims that the company failed to comply with refrigerant leak repair and recordkeeping requirements in violation of Section 608 of the Clean Air Act and its implementing regulations. United States v. Trader Joe’s Co., N.D. Calif., No. 3:16-cv-03444 (June 21, 2016). This represents the third settlement in three years brought against a major grocery chain for alleged violations of the commercial refrigerant regulations. Under the terms of the settlement, Trader Joe’s agreed to spend approximately $2 million dollars over the next three years to reduce leakage of ODS and GHG emissions and to improve its corporate compliance program. Trader Joe’s will also pay a civil penalty of $500,000. We expect continued federal scrutiny and enforcement of companies’ compliance with the refrigerant regulations, including those currently being promulgated by EPA proposing to extend the requirements to non-ODS refrigerants that have high global warming potential (“GWP”), such as hydrofluorocarbons (“HFCs”).

Summary of the Trader Joe’s Settlement

The alleged violations concern failure to timely repair refrigerant leaks and/or maintain complete records at four hundred and fifty three (453) Trader Joe’s retail locations, as required by the National Recycling and Emissions Reduction program. 40 C.F.R. Part 82, Subpart F. Under these regulations, leaks from commercial refrigeration equipment containing more than 50 pounds of ozone-depleting refrigerants must be repaired within 30 days. The U.S. government alleges that Trader Joe’s failed to repair leaks of a coolant, R-22—a hydrochlorofluorocarbon (“HCFC”) that is an ODS with a high GWP—from its refrigeration equipment within the time required. The government also alleges that the company failed to keep the required service records for its refrigeration equipment and failed to provide complete information about its compliance.

Under the settlement, Trader Joe’s is required to meet an annual corporate-wide average leak rate of 12.1 percent through 2019 (the average leak rate for grocery stores is around 25 percent). The company must also use non-ozone depleting refrigerants at all new stores and major remodels, and in at least 15 of these stores, use an advanced refrigerant that has a low GWP, such as carbon dioxide. In addition, Trader Joe’s will be subject to increased audits and is required to centralize its recordkeeping within the company and to provide searchable electronic reporting to EPA. The company will also implement a corporate refrigerant compliance management system that includes a mandated quarterly monitoring program to detect leaks.

This settlement continues a string of enforcement by EPA against major grocery chains over alleged violations of the commercial refrigerant regulations (EPA entered into settlements with Safeway Inc. in 2013 and Costco Wholesale Corp. in 2014). In addition to imposing a number of substantive and recordkeeping and reporting conditions, the Trader Joe’s settlement represents the first time that EPA has required a company to repair leaks of HFCs, which do not deplete the ozone layer but are significant global warming agents. HFCs are currently used in refrigeration equipment in approximately a quarter of Trader Joe’s stores. The settlement’s HFC requirements reflect both the Administration’s goals to reduce HFC emissions, as announced in President Obama’s 2013 Climate Action Plan, and EPA’s use of Section 608 of the Clean Air Act to achieve GHG emission reductions. We expect to see continued enforcement in line with these goals. Companies should review their corporate compliance management system for refrigerants, as well as their implementation practices, to ensure they are meeting the leak repair and recordkeeping requirements.