On January 10, 2018, the U.S. EPA raised the maximum civil penalty to $19,446 per violation of the federal pesticide law, the Federal Insecticide, Fungicide and Rodenticide Act (FIFRA). 83 Fed. Reg. 1190 (Jan. 10, 2018). This is EPA’s third increase to the FIFRA maximum penalty limit in less than two years, marking a more than 250% increase from 2016 levels. Periodic increases are required by the 2015 amendments to the Federal Civil Penalties Inflation Adjustment Act and are applied to each statute EPA administers. The annual increases are intended to keep the maximum civil penalty amounts, originally enacted long ago, in step with today’s dollars.
The FIFRA maximum per violation civil penalty varies depending on when the violation occurred and when the penalties were assessed:
FIFRA violations involving the distribution or sale of a product (e.g., misbranded labeling), are assessed by the number of transfers or shipments, going back as much as five years. Violations involving retail products with high volumes of individual consumer purchases, at the maximum penalty of $19,446 per violation, can quickly reach mythological proportions. For example, 1,000 individual sales of one problematic product in one year, in theory, would result in a potential maximum civil penalty under the rules of more than $19 million.High Penalty Amounts Pose a Significant Risk.
In practice, EPA applies discretion in using its penalty authority and follows the 2009 FIFRA Enforcement Response Policy (ERP), which serves as a guide for EPA staff and attorneys when determining the appropriate penalty amount to seek from an alleged violator. The ERP uses a formulaic method that weighs several relevant factors to determine the appropriate per-violation penalty, including size of business, the culpability of the violator, the gravity of the violation, and the extent of actual or potential harm. In addition to these adjustment factors, the policy also provides for a “graduated” penalty calculation that incrementally reduces the applicable penalty per violation on a “per product violation” basis. EPA will also consider whether the penalty sought exceeds the violator’s ability to continue in business.
Despite the various adjustment opportunities under the ERP, potential penalties can still reach very significant sums. For instance, for 1,000 sales (violations), even if given the ERP’s maximum 60% downward gravity adjustment, the initial penalty amount would still be more than $7.5 million. However, the adjusted penalty generated by the ERP is merely the number EPA would assert in a civil or administrative complaint, and often serves as a starting point for settlement negotiations. Penalties may be reduced even further during negotiations, which, in some cases, may entail up to an additional 40% in reductions for showings of good faith or special circumstances. EPA also has discretion in choosing the number of violations to assess, which can dramatically affect the outcome.
The significant increase in potential FIFRA penalties makes it more important than ever to assure FIFRA compliance. Registrants should build FIFRA compliance procedures and management tools into their business processes, taking into account their internal operations but also the actions of their supplemental distributors (i.e., subregistrants), for which registrants are held jointly and severely liable under FIFRA. Supplemental distributors and retailers have independent duties as well, and are vulnerable to compliance errors and enforcement if they are not familiar with FIFRA obligations. There are ways to reduce compliance risks, such as regular internal compliance audits, and taking advantage of the significant penalty relief allowed under EPA’s Audit Policy, which requires, among other things, the prompt self-disclosure of violations to EPA that were independently discovered and corrected by the auditor. Distributors and retailers that have planned ahead also can rely on the safe harbor of a FIFRA § 12(b)(1) guarantee obtained from the registrant, which provides enforcement indemnity against any claim that a product is not properly registered under FIFRA.