Today's Environmental Crises Call For A Risk-Driven Strategy

Tuesday, March 18, 2014 - 16:03

The Editor interviews James K. Vines and Adam Sowatzka, King and Spalding LLP. Mr. Vines is a Partner in the firm’s Atlanta office, and his practice focuses on environmental, health and safety and other regulatory compliance counseling. Mr. Sowatzka, a Partner in the firm’s Tort & Environmental Practice Group, advises clients regarding the environmental aspects of regulatory compliance, corporate transactions, and sustainable development.

Editor: Please tell us about your professional backgrounds.

Sowatzka: I have a bachelor’s degree in environmental policy and a master’s and a law degree from Vermont Law School, the number one environmental law school in the country. I always intended to practice environmental law and have done so my entire professional career. I spent about six years as an associate regional counsel with EPA, engaged in enforcement and regulatory work. I’ve also been the general counsel of an environmental company and have practiced environmental law in private practice, so I’ve worked on these issues over the years from multiple perspectives.

Vines: I’ve been an environmental health and safety lawyer my whole career, dating back to the late ’80s. This is my second time with King & Spalding. I was a young lawyer there from 1990 to 1993, when I left to go in-house. I was the chief environmental health and safety lawyer for Bridgestone/Firestone tire and rubber company, which also has a  petrochemical division. I then spent five years at the Justice Department as U.S. Attorney in Nashville. I’ve also been an adjunct professor of environmental and health and safety law at Vanderbilt Law School in Nashville. I returned to King & Spalding in 2006, increasingly focusing on environmental health and safety management systems and helping clients deal with crisis management in the environmental health and safety area.

Editor: What is environmental crisis management (ECM)?

Vines: To an increasing degree over the last several decades, large industrial companies have faced a variety of crises that end up in high-stakes litigation, before Congressional investigatory committees, in insurance litigation, or international arbitration. Those crises can cover a variety of issues, from allegations of financial fraud to product recall events. We’ve started helping clients with the subset of that practice area that deals with large-scale environmental releases: chemical spills, fuel spills and explosions. Simply put, environmental crisis management is the subset of overall crisis management dealing with large-scale environmental disasters.

Editor: Which industries and sectors should be paying the most attention to ECM, and which ones aren’t paying enough attention to it?

Vines: The 2010 BP Macondo explosion and spill (Deepwater Horizon) is probably the iconic incident in this area, so many companies in the industry sector have focused their attention on crisis-management; however, these large-scale accidents happen in a variety of settings. Every industry that handles large quantities of chemicals or other types of hazardous substances that have the potential to release or cause chemical reactions or ignitions – flammable and explosive materials – ought to be thinking about ECM.

Sowatzka: The fertilizer facility explosion outside Waco, Texas in April 2013 and the leak at Freedom Industries and discharge into the Elk River in January 2014, are recent events that have garnered national attention. Any time there is an accident or the EPA or OSHA focus on a particular industry, the area is ripe for crisis management and preparedness. Those two specific examples involve ammonia and fly ash. Just to speak briefly about ammonia, there’s been an enforcement initiative by both OSHA and EPA involving facilities that store or use over 10,000 pounds of ammonia. So, going forward, any company responsible for a release of ammonia is going to be under more scrutiny given the regulatory emphasis. The other example is fly ash. The power industry and power companies use impoundments to store fly ash. In December 2008, the TVA had a large fly ash release at its Kingston facility in Roane County, Tennessee. The spill involved approximately 1.1 billion gallons of fly ash, which impacted the Tennessee River. As a result, EPA began the process of developing new regulations for fly ash disposal. Most recently, in February 2014, Duke Energy had another release of fly ash which involved the Dan River in Eden, North Carolina. This has led to a renewed interest by EPA involving those kinds of facilities.

Vines: It’s important for businesses that use ammonia to be aware of the risks involved, as ammonia releases can have a very significant environmental impact. There are many different industries that use a lot of ammonia in their processes; for example, a company that needs large-scale refrigeration runs the risk of an ammonia release, as do agribusiness companies that use ammonia in fertilizer compounds.

Editor: We’re mostly talking about effects on the environment, but it seems that other entities are involved in these disasters.

Vines: As shorthand, we sometimes refer to an “environmental event” or an “environmental crisis,” but the full and more accurate term is “environmental health and safety” or “EHS” event. That’s an important distinction, because if you look at recent high-profile crises, the public tends to focus on the environmental contamination impact, but you can also end up with very large-scale human health impacts. So it’s environmental health and safety, not just environmental crises that we’re talking about. In the global arena, large companies are looking at this area as “process safety,” a sort of self-defining set of preventative processes for mitigating risks of major EHS crisis that have the potential to create large-consequence damages either to the environment or to humans or both. A focus on process safety as a cross-disciplinary specialty is growing among EHS professionals around the world.

Editor: How can we differentiate that from the OSHA Process Safety Management standards?

Vines: It’s both similar and different. The OSHA Process Safety Management standard is a typical U.S. standards-driven regulatory program. You’re either in the program or you’re out of it based on whether you meet certain thresholds largely tied to storage and usage of certain amounts of chemicals. And since it’s OSHA-driven, it’s mostly focused on the health and safety side of the house standard. Process safety, in the global sense, is more of a risk-driven program where companies look at their overall processes and, based on probabilities and the scale of likely events, manage those much in the same way that the Process Safety Management standards would be managed under OSHA, but from a risk-driven perspective instead of simply meeting regulatory thresholds. Process safety covers that overlap of environmental and health and safety risks that can result in huge impacts to the environment as well as multiple human fatalities and severe injuries.

Editor: Is that ultimately a more holistic way of addressing the problem?

Vines: Yes, and that’s why a lot of companies address environmental health and safety as one discipline, whereas in the outside law firm community, people tend to focus on either environmental legal issues or health and safety. Even in the government those are very different agencies: health and safety in the U.S. government is dealt with by the DOL, which is a very different arm of government from the EPA, whereas global energy, chemical and petrochemical companies now use a more holistic approach.

Editor: What are the phases of ECM?

Vines: ECM has three phases. The aftermath of the crisis is the phase everybody tends to talk about, but we break it down differently. The significant one is the first phase before there’s even a crisis. This is where you do your crisis prevention and crisis preparedness work both to try to make sure you don’t have one of these events in the first place, and that you’re prepared if one happens. The second phase of crisis management occurs while the crisis is unfolding – while the fire is still burning or the leak is still leaking. It’s in this emergency state that the company has to cover a lot of bases in a short period of time. The third phase, the “mop-up,” occurs after the event is under control, and it’s when most legal aspects come into play. There can be litigation or arbitration or the agency enforcement processes to deal with, or even criminal prosecution or a Congressional investigation. We approach ECM by breaking it out into those three phases and addressing each of them in turn.

Frequently, our clients ask us, what are you going to do when we call you at 2 a.m. to tell you that we’ve had a big crisis event at one of our facilities? Our standard answer is that it won’t be the first time we’ve spoken about your crisis. When you call us in the middle of the night, we’ll begin to execute the preparedness plan that we’ve already talked about at length, rather than reverting to the old-fashioned way of just dealing with the crisis after it happens.

Sowatzka: For simplicity, I describe the phases as before, during and after a crisis. We’ve all received those calls at two o’clock in the morning as the crisis is just beginning. That’s the “during” phase of the crisis. Then there’s the aftermath or “mop-up” phase, which could include everything from addressing the claims that stem from the chemical releases or the death of an employee. In every case that I have been involved in, the client wishes they had spent more time in the prevention and preparedness phase of crisis management. One component of the aftermath phase, which is critical and often overlooked, is helping clients with multiple facilities throughout the U.S. or around the globe to implement the lessons learned from an incident. The second time around, federal agencies, juries, and others are less sympathetic than they might be to a company that is going through its first crisis.

Editor: Have you seen companies come in at the prevention stage? Has there generally been a move towards that so you’re not just coming in at phase three?

Sowatzka: We have seen a renewed interest in companies that have learned from the Deepwater Horizon spill and other high-profile cases to become more proactive. In the last year, we’ve been engaged numerous times to do just that – to go through the preparedness process and develop a communications plan and a response team to put themselves in the best position possible to address a crisis. Several industries – such as transportation (whether it be marine, railroad, trucking), large refineries, and chemical companies – are the ones leading the charge on crisis preparedness.

Vines: My observation is that the increased attention on work on the front end of these crisis management efforts goes back to the Enron episode, which was a financial or accounting crisis and had little to do with environmental health and safety. In the intervening decades, at least in the United States, we’ve entered an era when corporate governance at the board level and officer level has focused more on ongoing compliance with a broad spectrum of law as opposed to the pre-Enron era, when everybody was more focused on their particular areas of enforcement exposure if they violated a regulation and got caught during an inspection. We’ve seen across a broad range of industries, from energy to pharmaceuticals and healthcare, that upper management has been pushing to make sure there’s upfront compliance. And not just compliance with specific laws and regulations with the force of law, but with consensus standards, with international fire codes and safety codes and industry best practices. The emphasis is on preventing these crises from happening in the first place, rather than making sure you have the right lawyers in your Rolodex (or iPhone) to handle the defense after something goes wrong.

That’s actually an increasing part of my workload – helping companies to develop environmental health and safety management systems. The idea is that you systematize the management of your environmental health and safety performance just like you would for all the other parts of your business processes, whether it’s financial or manufacturing or procurement. Companies that are focusing on building and improving environmental health and safety management systems typically include very robust components that address this very topic of preventing crises and being prepared for them when they happen.

Editor: Do you want to make the comparison of U.S. companies to foreign companies and how we respond differently?

Vines: That’s becoming a significant comparison. Maybe it’s not so much U.S. companies versus foreign companies but U.S. companies that tend to focus on domestic operations versus ones that have global operations. It gets back to how in the U.S. we still have environmental health and safety legal regimes that are very standards-oriented. More and more, that’s not the norm in the rest of the world. The UK’s Safety Case regime is an example of the risk-driven, risk-assessment-type of environmental health and safety management that’s becoming much more popular and effective. Companies are doing more qualitative and quantitative risk assessment of their environmental health and safety risks. If they’re in jurisdictions where they have to meet standard-driven requirements, they do that obviously because they don’t want to be civilly or criminally enforced against for not being in compliance with the law, but a lot of them are going beyond compliance to actually managing the risks that they determine from their own internal processes as being where the real closure to these large-consequence environmental health and safety events resides.

Sowatzka: One trend towards enforcement of more general standards is the EPA’s enforcement of the general duty clause that’s found in section 112(r) of the Clean Air Act. In 1990, primarily in response to the disaster in Bhopal, India, Congress passed the Clean Air Act amendments that included a general duty provision. It’s a very broad requirement. Unlike the risk management program (RMP) provisions, there’s no list of covered substances or threshold quantities; this isn’t a regulatory program that has reporting requirements, and there are no exemptions or exclusions. Rather, it’s a broad duty to identify hazards that may result from releases using appropriate hazard assessment techniques to design and maintain a safe facility and take steps that are necessary to prevent releases and to minimize the consequences of accidental releases, which do occur. The move in that direction may be a trend in the U.S. and, frankly, we’re starting to see a lot more activity by EPA to enforce this particular Clean Air Act provision.

Editor: What role do lawyers play in ECM? What other disciplines get involved?

Vines: This is truly one of the most multi-disciplinary areas that any company faces because obviously no lawyer can physically keep a crisis from happening. We can’t make a factory not blow up. That takes engineering and operational expertise. We can’t encourage the news media not to make a bigger issue of a relatively small issue because that’s within the realm of PR and government affairs experts of the company. The lawyers in this field have the ability to help companies assess their compliance obligations both on the domestic and international levels. We also counsel them about the public perceptions of corporate behavior, particularly when the spotlight is shining on them during a crisis event. Something that may initially be revealed during a media moment could later become key evidence in a criminal or civil trial or a Congressional investigation. A network of legal issues tends to thread through all these other disciplinary issues.

I can’t overstate the risk assessment part of this: if it were up to me, I would probably want to have more of the risk-driven type of system that we’re seeing outside the U.S.

There will always be a role for lawyers in the inevitable enforcement actions that are going to happen in the wake of these events, but I would suggest that there’s an emerging role for lawyers that may be even more critical than providing a skillful enforcement defense, and that is helping your client make sure they have the best possible factual record when it goes into an enforcement matter or litigation after the accident. If you’re planning how you might either prevent or be prepared for a large-scale crisis, you’re in essence building the factual record that’s ultimately going to be used in the litigation or the prosecutions brought against you after a crisis. While you have the luxury of being able to do that when there’s no impending crisis, you can manage it. You can do everything humanly possible to keep a crisis from happening, but if you get into the third phase (the mop up) and have to defend your actions, if you’ve done a really good job on the front end, you’re going to be a lot happier with the factual records that you’ve developed.

Editor: What is your firm’s experience with ECM?

Vines: Our experience with ECM continues to grow. We’re assisting Chevron in Ecuador with its environmental arbitration. I’ve helped a client recently to deal with an explosion and a shutdown of an energy facility in the Middle East, with everything from media and political issues to environmental health and safety regulatory requirements. Our firm has a long history of crisis management. Since the 1980s, we’ve been helping a variety of companies deal with crises; for instance, we represented Toyota in the sudden acceleration matter before Congress in the past few years, and we represented Bridgestone and Firestone in the tire recall issue back in 2000. We also represented the Paterno family in the issue related to the prosecution of the assistant coach at Penn State, and we have a lot of experience working with DOJ and with Congressional oversight committees. The environmental health and safety part of crisis management is just one of the subareas we’ve increasingly been doing work in.

Editor: Are the EPA and OSHA the only relevant agencies in this context?

Vines: They are not. We’re seeing that outside of traditional manufacturing and chemical processing, in the energy field  (again BP Macondo is the driver of a lot of this) the Department of the Interior has started issuing, through some of its subagencies, a lot of environmental health and safety regulations affecting offshore drilling and exploration and production. We also see the Bureau of Land Management, the U.S. Forest Service, and other agencies that deal with mining and timber operations putting out environmental regulations that have to be complied with. EPA and OSHA are the iconic agencies that work in this field, but companies need to look a lot further than that to the potential sources of governing law – even to what are frequently referred to as the consensus standards.

Vines: We’d be remiss if we didn’t highlight the Chemical Safety Board. Getting back to the U.S. mindset, a lot of lawyers and EHS professionals in our field tend to look through the lens of worrying about the EPA and the OSHA exposure, but what we’re finding, especially in these large-scale environmental health and safety events, is an emerging presence and almost predominance of the impact of the Chemical Safety Board. Today, there aren’t many CSB experts among lawyers who work in this area, as it traditionally has not been an area of practice, but we’re giving a lot of increased attention to the importance of the CSB and CSB’s written reports after major accidents.

Sowatzka: Forgetting about an agency like CSB can be a critical flaw in representing the best interests of your client. If you have an incident and you lose sight of the CSB and they issue their report and their findings, it becomes a real challenge in defending the civil or criminal action by EPA or the lawsuits that are filed in state court for damages.

Vines: That can’t be emphasized enough. That CSB report is possibly the most powerful piece of adverse evidence you may have to deal with in whatever you face in that third mop-up phase. Once the CSB has committed its findings to paper, it’s very difficult to get that turned around.

Editor: If our agencies were less siloed, might we be better at approaching these problems?

Sowatzka: I’ll answer that question by describing a recent experience where a client had a large chemical release that resulted in 150 people, some of them employees, having to go to the hospital. The scope of what resulted from that one incident was amazing because a lot of very siloed agencies were involved. For example, I helped coordinate an in-depth technical root cause analysis and investigation. I had to manage inquires from both OSHA and the U.S. Chemical Safety and Hazard Investigation Board. I helped conduct the investigation of the organizational and other causes of the incident and had to respond to both criminal and civil investigations by the DOJ, the EPA, and the state. I also had to work closely with local counsel in defending all of the personal injury claims, and following on that, the evaluation and enhancement of the compliance and environmental management system that the company needed to have to prevent a reccurrence of that incident. With just one incident, the scope of the investigations that can result is quite breathtaking.

 

Please email the interviewees at jvines@kslaw.com or asowatzka@kslaw.com with questions about this interview.