Fifth Circuit Upholds $81M Penalty for Wastewater Spillage

On February 14, the U.S. Court of Appeals for the Fifth Circuit filed an unpublished opinion in the case of U.S. v. CITGO Petroleum Corporation, upholding the ruling of the U.S. District Court for the Western District of Louisiana that CITGO should be assessed a penalty of $81M for the massive spillage of wastewater into navigable waters at CITGO’s Lake Charles Refinery.

In 2013, the Fifth Circuit reversed the initial penalty assessment of $6M levied by the District Court, directing that court to make a “reasonable approximation” of the economic benefit to CITGO in not having on hand at the facility sufficient workable storage capacity for wastewater generated by the operations of the facility.

On remand, the District Court conducted a “thorough analysis” and concluded that CITGO realized an economic benefit of $91.7 million. However, applying the penalty factors set forth in the Clean Water Act, the District Court determined that a ”downward departure” was appropriate, and reduced the fine to $81 million.

Both CITGO and the Government appealed.

CITGO argued that the District Court erred in failing to consider the “least costly alternative” to prevent spillage, and in applying a 10.04 weighted average cost of capital rate. The Fifth Circuit rejected this argument, and deferred to the District Court’s discretionary authority in such matters.

With respect to the U.S.’s position that the District Court erred in its penalty calculations, the Fifth Circuit also rejected this argument:

“The calculation of discretionary penalties is not an exact science, and few courts could comply with [the government’s] request that the importance of each factor should be precisely delineated.”

Judge Clement filed a partial dissent, because in her view the proper use of the “least costly alternative analysis” required a more thorough approach.