On May 28, 2013, Wal-Mart Stores, Inc. (“Wal-Mart”) entered into two plea agreements (“Plea Agreements”) and one consent agreement and final order (“CAFO”) for misdemeanor and civil violations of the Clean Water Act (“CWA”), the Federal Insecticide, Fungicide and Rodenticide Act (“FIFRA”) and the Resource Conservation and Recovery Act (“RCRA”).1 Wal-Mart settled with the government after several cases were brought against it by the Department of Justice in San Francisco, Los Angeles and Missouri, in addition to a civil suit brought by the U.S. Environmental Protection Agency (“EPA”). Initial investigations commenced in November 2005 when the United States Attorney’s Office for the Central District of California, subsequently joined by the U.S. Attorney’s Office for the Northern District of California, sought information relating to Wal-Mart’s “receipt, transportation, handling, identification, recycling, treatment, storage and disposal of certain merchandise that may constitute hazardous materials or hazardous waste.”2 In January 2008, the U.S. Attorney’s Office for the Western District of Missouri and the EPA “opened an investigation regarding pesticides that were shipped to a third-party contractor with whom the company had contracted for recycling services.”3
The EPA stated that Wal-Mart “is the largest retail company in the world, with over 10,000 stores in 27 countries.”4 Wal-Mart’s retail stores sold and continue to sell thousands of consumer products to the general public. Items sold by Wal-Mart that may be considered hazardous waste under federal or state law when discarded include “bleaches, pool chlorine and acids, pesticides, fertilizers, paints and varnishes, lamp oil and other ignitable liquids, aerosol products, oven cleaners and various other cleaning agents, automotive products and solvents, and other flammable and corrosive materials.”5 The multi-billion dollar retailer claims that these actions stemmed from violations of environmental laws that occurred years ago, as Wal-Mart retail facilities and return centers did not initially classify returned or damaged products as hazardous waste nor did these facilities handle the hazardous waste in accordance with federal and state law.6 In 2006, however, Wal-Mart “began to implement an enhanced environmental management program in all of its [r]etail [f]acilities [seeking] to provide for the proper management of hazardous wastes at all” Wal-Mart retail stores.7
Wal-Mart continues to evolve as an industry leader in environmental compliance, corporate sustainability, and environmental stewardship. Since 2006, this worldwide retailer has worked diligently to address allegations of non-compliance and to ensure “compliance with all applicable environmental laws. ...”8 Wal-Mart persistently improves its hazardous waste management systems, develops enhanced hazardous waste management and disposal training and implements standard operating procedures relating to environmental compliance at its retail facilities.9 Additionally, Wal-Mart recently formed a corporate compliance structure whereby it “created a home office vice president position responsible for environmental compliance” in addition to existing environmental compliance personnel located within a particular home office department.10
As part of the Plea Agreements and CAFO, Wal-Mart is now subject to two to three years of unsupervised probation, as well as a five year requirement to maintain and enhance existing environmental compliance, training, and reporting programs at its stores.11 Additionally, Wal-Mart will pay a combined total of approximately $82 million in fines, assessments, civil penalties and community service payments.12 An Interim Administrative Agreement between Wal-Mart and the EPA became effective upon the acceptance of the Plea Agreements and “requires the maintenance of the [c]ompany’s existing global ethics program and office [as well as] semi-annual reporting by the Company to the EPA with respect to the federal environmental laws. ...”13
Wal-Mart pleaded guilty to six misdemeanor counts of negligently violating the CWA.14 The CWA charges were filed by the U.S. Attorney’s Office in Los Angeles and San Francisco and were consolidated in the Northern District of California where the case was settled.15 The company entered into a Plea Agreement in California, whereby “Wal-Mart was sentenced to pay a $40 million criminal fine and an additional $20 million that will fund various community service projects, including opening a $6 million Retail Compliance Assistance Center that will help retail stores across the nation learn how to properly handle hazardous waste.”16
Wal-Mart also pleaded guilty in the Missouri matter. At the time of the alleged FIFRA violations, Wal-Mart operated six collection and processing locations (“return centers”) for various types of regulated solid and liquid household pesticides,17 and from approximately July 2006 until February 2008 “Wal-Mart sent truckloads of household products, including regulated pesticides, from its various return centers destined for and delivered to [Greenleaf LLC’s (“Greenleaf”)] facility in Neosho, Missouri.”18 However, “Wal-Mart failed to adequately train its return center employees with regard to the special handling of regulated pesticides sent to Greenleaf.”19 More than two million pounds of pesticides were shipped by Wal-Mart and distributed by Greenleaf without the required registration, ingredients or use information, in violation of 7 U.S.C. § 1361(b)(1)(B).20 Consequently, Wal-Mart spent nearly $3.5 million “to properly remove and dispose of all materials from Greenleaf’s facilities.”21Pursuant to its Plea Agreement with Missouri, Wal-Mart will pay a criminal fine of $11 million.22 Further, Wal-Mart “will make a community service program payment in the amount of [$3 million] to the Missouri Department of Natural Resources (“MDNR”) Hazardous Waste Program which shall be ... used to fund a Statewide Pesticide Inspection and Education Initiative.”23
To resolve civil violations of RCRA and FIFRA, Wal-Mart entered into a CAFO with EPA on May 28, 2013.24 These violations “resulted from the mismanagement of hazardous waste ... and the mismanagement of damaged pesticide containers” by Wal-Mart.25Pursuant to its CAFO with EPA, Wal-Mart agreed to implement an Environmental Management System (“EMS”) into all of its retail stores nationwide.26 Enhanced EMS procedures will include: (1) reorganization of Wal-Mart’s Home Office Environmental Compliance Organization; (2) implementation of additional outside resources to assist retail stores in compliance with hazardous waste management; (3) inclusion of explicit environmental compliance requirements into staff personnel job descriptions; (4) assignment of new claims supervisors responsible for environmental compliance at retail locations; (5) creation of a new manager position at Sam’s Club (owned by Wal-Mart) responsible for hazardous waste management; (6) advanced training requirements for certain retail associates; (7) tracking of environmental training at retail stores and Sam’s Club locations; (8) contracts with an independent third party to “develop environmental compliance information systems to be used to track environmental obligations at [r]etail [f]acilities”; and (9) development of return and distribution centers specificly for hazardous waste EMS.27 As a result of the RCRA and FIFRA civil violations, Wal-Mart “will pay a $7.6 million civil penalty to the United States.”28
The lesson to be learned from the Wal-Mart settlement is simple. Both large and small companies must pay careful attention not only to their own environmental compliance practices, but also to the compliance practices of companies up and down the supply chain. Even sophisticated companies like Wal-Mart, with a deep and experienced bench of in-house lawyers and environmental health and safety personnel, failed to appreciate that their company’s day-to-day routines had run afoul of the complex web of environmental laws and regulations. Fortunately, many states have specific laws granting protections to companies that perform environmental audits in order to gauge their compliance with state environmental laws and regulations. These environmental audit privilege statutes can save literally hundreds of thousands, if not millions, of dollars in fines and penalties for those companies willing to evaluate their compliance practices and improve them.
This article was prepared with the able assistance of Jessica Dugdale, a Taft summer associate, and Melissa Gardner, a Taft attorney.