Texas Environmental, Health and Safety Audit Privilege Act SCOTT D. DEATHERAGE PARTNER G A R D ERE WYNNE SEWELL, DALLAS S D EATHERAGE@GARDERE.COM
Legislation Texas Environmental, Health and Safety Audit Privilege Act (Act or EHS Audit Privilege Act) Passed by the Texas Legislature in 1995 Amended in 1997 Covers environmental and health and safety audits
Elements for Immunity P the disclosure was made promptly after the violation was discovered; I the disclosure was made in writing by certified mail to the TCEQ; N the violation was not independently detected, or an investigation of the violation was not initiated, before the disclosure was made in writing by certified mail; N the violation was noted and disclosed as the result of a voluntary environmental audit; A appropriate efforts to correct the noncompliance are initiated, pursued, and completed within a reasonable amount of time; C the disclosing person cooperates in the investigation of the issues identified in the disclosure; L the violation lacks injury or imminent and substantial risk of injury; and E the disclosure is not required by an enforcement order or decree.
What Benefits Do You Receive Performing an Audit? A privilege protecting the report produced under the Act cannot be required to be disclosed in civil or administrative proceedings, with some exceptions Immunity from administrative or civil penalties for violations disclosed in accordance with the provisions in the Act
What Benefits Do You Not Receive Performing an Audit? Benefits only apply to civil and administrative proceedings Report may be required by court to be disclosed in a criminal proceeding Immunity does not apply to criminal sanctions
How Do You Conduct an Audit under the Act? Notification to Texas agency, Perform audit, Disclosure of violations to Texas agency, Correct violations disclosed, and Demonstrate corrections made to Texas agency
Who Do You Notify? The agency with jurisdiction over the subject matter of the audit, such as Texas Commission on Environmental Quality, Railroad Commission of Texas, Texas Department of Public Safety, Texas State Department of Health Services, and Other Texas agencies
What You Need to Know about Notice? Section 10(g) of the Act Notice must be submitted before conducting the audit, Planning to conduct an audit, Date audit to commence, The facility or portion of the facility to be audited, and The general scope of the audit
What Should Be the Scope of the Audit? First determine the areas or media to be audited For example, if an environmental audit, do you review all environmental media, or focus on one area such as air emissions? May depend on The history and results of prior auditing, or Size and complexity of the facility and regulated activities
How Should the Audit Be Conducted? Determine whether the audit will be performed by in-house or outside experts Determine if legal counsel will be involved (advantages of involving environmental legal counsel discussed below) Must be conducted within a reasonable time but not more than 6 months Extension may be granted on reasonable grounds Document when any potential non-compliance is identified for disclosure reasons (discussed below)
How Should Disclosure Be Made? Must be made to the agency with relevant jurisdiction Submit prior to agency request for information or EHS Audit Act may not apply Must be made within 6 months Must be submitted by certified mail
TCEQ s Preference for Report Content The legal name of the person audited a reference to the date of the relevant NOA certified mail reference number the time of initiation and completion (if applicable) of the audit an affirmative assertion that a violation has been discovered a description of the violation discovered, including references to relevant statutory, regulatory, and permit provisions, where appropriate the date the violation was discovered the duration of the violation (start date of violation to completion date of corrective actions) the status and schedule of corrective actions Guidance on the Texas Environmental, Health, and Safety Audit Privilege Act (2009)(originally published 1997)
Correcting Any Noncompliance The Act, Section 10(b)(5), requires that the person making the disclosure initiate an appropriate effort with due diligence, and correct the noncompliance within a reasonable time. (Emphasis added.)
How Do You Confirm with the Agency That the Compliance Issues Have Been Resolved? Care should be taken in what document or documents are actually submitted to the agency The format and wording is important in terms of avoiding admissions of liability, while still disclosing potential violations a fine line The parties who review the report and how it is maintained as confidential and secured from access from parties and employees who do not have a need to know about the report or its contents is significant particularly if the attorney-client communication is also going to be applied Extensions may be requested from TCEQ
Publication of Violations and Compliance Histories All voluntarily disclosed violations must be identified in a facility s compliance--history report as being voluntarily disclosed [Audit Act 10(i)]. The TCEQ views a voluntary disclosure as a positive action that leads to the correction of violations that might otherwise not be detected through traditional enforcement approaches. Guidance on the Texas Environmental, Health, and Safety Audit Privilege Act (2009)(originally published 1997), at 11.
Changes in 1997 Amendments The reference to the applicability of the audit privilege in criminal proceedings was removed. [Audit Act Section ( ) 5(b)] The reference to immunity from criminal penalties was removed. [Audit Act 10(a)] Federal agencies were deleted from the list of persons to whom certain audit disclosures can be made under a confidentiality agreement without waiving the audit privilege. [Audit Act 6(b)(2)(D)] Federal and state protections for individuals who disclose information to law enforcement authorities ( whistleblower laws ) were explicitly preserved. [Audit Act 6(e)] The administrative or civil evidentiary privilege was not waived when an audit report is obtained, reviewed, or used in a criminal proceeding. [Audit Act 9(a)]
Changes in 1997 Amendments A state regulatory agency may now review certain information included in an audit report without resulting in a waiver of the privilege if that information is required to be available under a specific state or federal law. Although in some cases the information could become available to the public by operation of state or federal law, it cannot be used in civil or administrative proceedings, and evidence that derives from the use of such information will be suppressed. [Audit Act 9] Immunity was further limited such that violations that result in imminent and substantial risk of injury in addition to actual injury are ineligible for immunity. [Audit Act 10(b)(7)] A new provision denied immunity for violations that result in substantial economic benefit that gives the violator a clear advantage over its business competitors. [Audit Act 10(d)(5)] The penalty for fraudulent assertion of the privilege for unprotected information was amended to allow for a maximum fine of $10,000 as an alternative to sanctions under Rule 215, Texas Rules of Civil Procedure. [Audit Act 7(d)]
Other Exclusions or Exceptions Does not apply to civil or administrative proceedings seeking injunctions to address noncompliance to require action or to prohibit certain actions that constitute or result in violations The agency initiates an investigation of the violation independently of the audit or before disclosure Disclosure is required by an enforcement order or decree Disclosure is made by a person who intentionally or knowingly committed the violation A court or administrative law judge finds the person claiming the immunity has, (1) repeatedly or continuously committed significant violations, and (2) not attempted to bring the facility or operation into compliance, so as to constitute a pattern of disregard of environmental or health and safety laws. In order to be considered a "pattern," the person must have committed a series of violations that were due to separate and distinct events within a three-year period at the same facility or operation.
Federal Policies on Auditing and Self Disclosure EPA, Incentives for Self-Policing: Discovery, Disclosure, Correction, and Prevention of Violations Final Policy Statement, 60 Fed. Reg. 66706 (Dec. 22, 1995) (Recommended Update to 19618 Volume 65, Number 70, April 11, 2000). Department of Justice, Factors in Decisions on Criminal Prosecutions for Environmental Violations in the Context of Significant Voluntary Compliance or Disclosure Efforts by the Violator (1991) OSHA, Final Policy Concerning the Occupational Safety and Health Administration's Treatment of Voluntary Employer Safety and Health Self-Audits (2000)
Why Should You Consider Privileges Afforded through Legal Advice from Attorneys? If an attorney is engaged to oversee and participate in the audit, two privileges may apply: Attorney-client privilege, and Attorney work product These privileges and protection are not eliminated by the same exceptions or exclusions under the EHS Audit Privilege Act
What Attorney-Client Privileges May Apply? Attorney-Client Communication Privilege Purpose: (1) to encourage full and frank communications between the client and the attorney, including all relevant information, to the attorney, and (2) to protect the advice provided by the attorney. Thus, clients do not have to be reluctant to provide private or potentially damaging information that a third party could obtain through court or administrative proceedings. Privilege: Communications, with some limited exceptions, between the attorney, whether oral or written, do not have to be disclosed to third parties or government authorities in litigation or other civil or administrative proceedings. Texas Rules of Evidence. 503(b)(1) May be waived if disclosed by the attorney or client to third parties
What Communications Are Protected? For purposes of an audit, the communications that are privileged include: between the client or a representative of the client and the client's lawyer or a representative of the lawyer, and between the lawyer and the lawyer's representative. Tex. R. Evid. 503(b)(1) A "representative of the client" is a person having authority to obtain professional legal services, or to act on advice thereby rendered, on behalf of the client, or any other person who, for the purpose of effectuating legal representation for the client, makes or receives a confidential communication while acting in the scope of employment for the client. Tex. R. Evid. 503(a)(2)
Waiver If reports, letters, memos, emails, or other documents to or from and attorney or his/her representative are disclosed to third parties, then the privilege may be waived Emails and attachments to emails to or from attorneys should not be circulated widely, but kept to only the group of people who are involved in the specific matter for which legal advice is sought For example, if an environmental manager is part of a group of management seeking legal advice, the documents exchanged with attorneys may not be appropriate to forward to environmental techs, line supervisors, or other employees of the company
Attorney Work Product This protection is more limited than the attorneyclient communication privilege Only applies where litigation has been filed, or litigation is anticipated The investigation and other work product in the form of ideas, knowledge, and written materials are protected from disclosure to third parties and governmental authorities Allows the attorney to prepare for the litigation or other proceeding and put his ideas and thoughts on paper without the risk of them being obtained by the other parties to the proceeding May be waived if disclosed by attorney or client to third parties
Benefits of Attorney Privileges EPA, OSHA, or other federal agencies may not respect the privileged nature of EHS auditing reports Apply at both the state and federal level Federal courts recognize the attorney-client communication privilege and attorney work product protections If the report is not protected under one of the many exceptions under the EHS Audit Act, then the attorney privileges can still be asserted
Conclusions For parties considering conducting environmental or health and safety audits, the EHS Audit Privilege Act provides a means of protecting the confidentiality of reports and obtaining immunity for civil and administrative penalties The process and means of obtaining the most benefit from this Act requires careful understanding and application of the provisions of the Act The risk of federal liability and federal policies regarding audits and self-disclosure should be considered The privileges and protections that may be afforded by engaging specialized counsel should be considered as an additional and more protective privilege as the audit process and approach is being developed
Scott D. Deatherage Partner Gardere Wynne Sewell Dallas, Texas 75201 214-999-4979 sdeatherage@gardere.com Energy and environmental lawyer with experience in compliance auditing, environmental corporate governance, enforcement actions and litigation, permitting, environmental and climate change disclosures under SEC and voluntary programs. Areas of experience include air emissions, wastewater, solid and hazardous waste, contaminated soil and groundwater, and health and safety.