The second EPA Shade Meeting -- full text
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-- posted to the web on 02/16/06

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RODNER: Good afternoon everyone. Again, my name is Seth Rodner. I'm a shareholder with the Fowler White law firm in Tampa. Just a minute on my background. In a former life I was a federal prosecutor with the Department of Justice in Washington, DC, and since leaving the Department about five or six years ago now it's been exclusively in the white collar criminal defense practice, first in Boston, and now back in Tampa.

When Bob contacted our firm and contacted Ron several months ago, Ron asked me to get involved and try to facilitate the interface with the U.S. Attorney's Office, try to evaluate the proposed terms of this resolution and make some recommendations about how to proceed. In discharging that function, we specifically did not go back and reinvent the wheel. We didn't redo the fact investigation and, in fact, relied heavily, extensively, if not exclusively, on Jon's internal investigation, which I thought was very well done and very well reported on back to us. Based on that we opened up a dialogue with Judy Hunt, who was the lead prosecutor, and Dan Green, who's the lead investigator, and have been able to develop a bit of insight into how they came to this point in the investigation where they're contemplating going to the grand jury and seeking a federal indictment of the city.

So before I talk about the terms of the proposed plea agreement, which I want to spend a few minutes on, what I'd like to do is address sort of that how-did-we-get-here issue.

It's really two issues. I want to talk for a minute about can the government as a matter of law charge the city, charge the organization for the acts of the individual rogue employees. Then I want to talk secondly about assuming they can do it from a legal standpoint, why are they doing it from a policy perspective. Then we'll get into the actual terms of thee agreement.

First, can they do it. The answer is, unfortunately, absolutely, they can do it. The doctrine of corporate or organizational criminal responsibility, which would certainly apply to the city as an organization, goes back over 100 years in American law. It goes back to a Supreme Court case in 1909. The concept there was that corporations, organizations can only act through their individual employees or agents, and to the extent those individual employees or agents engage in bad conduct, organizations shouldn't be able to escape or evade liability from that.

So this doctrine evolved essentially a two-prong test for when an organization can be held criminally responsible for the acts of its agents. The first prong is that the activity has to have been done within the scope of the employee's employment. Sort of makes sense.

If you just look at that language superficially you'd say, well, gosh, no one ever hired these people to engage in Clean Water Act violations so why aren't we out of this, of course it's beyond the scope. Unfortunately, the way that that language has been interpreted over the course of 100 years of jurisprudence is in a very broad and expansive way.

There are loads of cases in jurisdictions across the country which stand for the proposition that bad acts are deemed within the scope of employment even if they have never been directly or explicitly authorized by the organization, even if the organization's supervisory or management team wasn't even aware that the activity was going on. It can be deemed within the scope of employment even if the organization has explicit policies in its code of conduct, for example, that outlaw this type of behavior. As the doctrine has evolved, what it's come to mean simply is in a watered down way is it has to touch the employment in some way. There has to be some sort of relationship or nexus between the complained-of activity on the one hand and the employment on the other. Here we've got individuals working for the city's wastewater utility who are clearly engaged in the disposition of reclaimed water. They're doing it certainly in ways that would never have been authorized had the appropriate individuals known about it, but clearly a sufficient nexus to meet that first prong of the test.

The second prong of the organizational criminal liability test is that the complained-of behavior has to have been undertaken with the intent at least in part to benefit the organization. Again, you think about that at sort of the surface level, and you say this isn't benefiting the organization, this is, in fact, subjecting the organization to criminal liability, it's the exact opposite. Unfortunately, however, as the case law's evolved over 100 years it's a much broader and more expansive interpretation of that concept. Again, there are loads of cases in jurisdictions across the country which stand for the proposition that, number one, the behavior does not have to have been undertaken with the sole intent to benefit the organization. Moreover, the behavior does not have to have been engaged in with even the primary intent to benefit the organization.

In fact, if you have a employee who is acting principally to benefit himself individually and there is some secondary or tertiary or peripheral benefit to the organization that emures to the benefit of the organization, that's going to generate a sufficient nexus to meet the second prong, and here it's not difficult for the government to articulate that as Jon, I think, appropriately indicated in his remarks. The city had an issue with a rather substantial volume of reclaimed water and had nowhere to put it. Like it or not, with respect to the methods that the employees employed to get rid of that water, certainly it emured to the city's benefit in that respect. The water was, in fact, discharged. It did not require the city to go back and renegotiate or get a new permit to do that, it didn't require the city to expand its infrastructure to make its discharging more efficient. So in a lot of ways the government will certainly be able to articulate that this was undertaken at least in part to benefit the city. So with respect to that first question that I put on the table, can they do it as a matter of law, I don't think it's an overstatement to say absolutely they can.

That brings us to the second question, which is why are they doing it here. Based on Ron and my conversations with the EPA and the U.S. Attorney's Office, they clearly are of the belief that it was bad actors, rogue employees that got the city into this predicament. I don't think anybody believes that the city as an institution is a rogue institution. So why aren't they simply going after the individual employees? I've got a couple of thoughts on that.

One, as Jon alluded to -- and this first point really goes beyond the timeframe of Ron and my involvement -- but Judy Hunt clearly has said that in her view there is a protracted history of violations here on the part of the city, certainly not criminal violations, but a history of consent decrees and administrative and civil resolutions and they view this particular incident not in a vacuum but that of the culmination of this longstanding chronology. Like it or not -- and as a former federal prosecutor I can tell you that that factors into a charging decision. You think to yourself, gosh, there had been numerous opportunities here for this pattern of violations to have resolved and truncated, it clearly didn't do that with the administrative or civil hammer and so it's a factor that militates in favor of bringing down the criminal hammer. I think a related point is something else that Jon alluded to and that Judy has mentioned to Ron and me as well, and that is comments from various individuals, including the former city manager, that this whole unfortunate enterprise is at least in the view of the former city manager a cost of doing business and sort of a cavalier attitude on the part of the some.

Admittedly we would argue that the cavalier attitude on the part of the folks' leader engaged in the misconduct and we're in the position to stop it, and not a cavalier attitude that rises to the top levels of the city for sure, but nonetheless another factor that the U.S. Attorney's Office is factoring into its charging decision, that they really need to send a message here to the extent that there's any residual sentiment in any outlying area of the city hierarchy that this is in some way, shape or form the cost of doing business, this criminal charge is going to make certain that that is stamped out.

I think the third factor that plugs into this analysis focuses on the nature of this particular conduct at issue here. I'll talk in a minute about the fact that the charges, as styled, are charges involving violations of a permit condition. But if you look at the core underlying conduct, as Jon said, really that underlying conduct smacks of falsifying records, obstructing the ability of the government to piece together what happened, that sort of thing which prosecutors particularly tend to think merits a criminal sanction. So I guess the core allegation even in these down-selected charges is of a type that invariably causes prosecutors to think about invoking the parallel criminal remedy.

One thing I just wanted to touch on. Jon mentioned the concept of beyond a reasonable doubt. Certainly if the city were framed from settling these criminal charges and exercised its constitutional right to a trial by jury, certainly the government would have to prove all these charges beyond a reasonable doubt. But the issue is that what they would have to prove beyond a reasonable doubt, in other words the elements of the offense, are not particularly burdensome. I think that's a good segue into a discussion of the terms of the plea agreement itself.

Before I do that, Ron, do you have any comments or are there any questions on sort of that initial discussion?

NOBLE: No.

RODNER: With respect to the plea agreement, I guess, number one, is just to echo what Jon said in that of the universe of allegations that they've investigated and that they believe have merit, this plea agreement represents a dramatically down-selected set of charges, and, in fact, it is the easiest charges for them to prove. What I think is significant -- and just to digress for a moment -- the very first day that I got involved in this matter I was provided a copy of the proposed plea agreement in the information. And as I read through it I made some notes and I went back and looked at the notes in preparation for my meeting here today.

One of the first things that I jotted down in looking at these documents is that the charges that they're contemplating are not false statement charges, they're not obstruction charges, they're not falsification of records charges. There are no violations that complain of environmental harm. In fact, all three
counts, every single one of them, is a charge for violating a permit condition. The first two counts, as Jon said, talk about violating the permit condition by failing to monitor the outflow at Curry Creek. And the third count talks about violating the permit condition with respect to the discharge at Knights Trail. But, again, all three are violations of permit conditions, in my view, extraordinarily vanilla and a sort of middle-of-the-road charges given the scope of the allegations and some of the other types of violations they could have pursued here.

So I think it's significant to understand the benefit implicit in the charging decision itself. With respect to those counts, and I think Jon alluded to it already, there is sort of a further concession that is made in terms of the duration of the alleged misconduct. With respect to Count One, we're talking about I believe six days in July and August of 2001 where they have these DMRs to substantiate the failure to monitor. With respect to Count Two, we're talking about 14 days in total. And with respect to Count Three we're talking about a total of two days. In sum -- what is that -- 22 days.

THOMAS: Yeah. Let me interrupt here. The charges are -- the violations and the penalties are on a per-day basis. That's why looking at the number of days is important.

RODNER: Which anticipates my very next point, Jon. Thanks. So we're talking about 22 days in total.
The next step in the analysis and the next area where I think there's been a significant concession in this plea agreement is what sort of criminal punitive fine they're looking for with respect to each occurrence. When you talk about a Clean Water Act violation, the type that they're charging here, a violation of a permit condition, there's a range under the statute. The minimum statutory criminal penalty is $5,000 per occurrence and the maximum is $50,000 per occurrence per day, which allows the government obviously tremendous discretion and gives them a tremendous hammer. The further concession that they've made here after sort of narrowing the number of days at issue is they've agrees in writing to recommend to the sentencing judge that the city be given a sentence at the very bottom end of that range, in other words $5,000 per day over the course of the 22 days. So that's another pocket of value, I guess is another way to think about it, in this agreement.

One caveat I have to mention here with respect to that calculous. There are an additional five days at Curry Creek that the government is not contemplating charging the city with and which are not incorporated into this plea agreement, but which to the extent the government elects to go forward and prosecute individuals are likely to be included in an individual's indictment. For consistency purposes, the government is going to need to disclose that to the sentencing judge at the city's sentencing, and there's certainly a possibility that the judge may view it inappropriate not to charge the city with those additional five days. If that, indeed, happens, the government would recommend that the city receive the same minimum $5,000 per day fine. I mention it just because there is a possibility even under the government's recommendation that there's another five days at $5,000 or $25,000 in exposure here.

I want to come back to the issue of the judge's discretion in all of this in a few minutes, but first a couple of other observations about the plea agreement. The first is what does the city get back in exchange for paying this money and admitting to this behavior.

THOMAS: Your calculous thus far is $110,000 is the recommendation?

RODNER: Plus the additional $25,000.

COUNCILMAN RICK TACY: So it's $135,000?

RODNER: Correct.

TACY: It was initially $110,000?

RODNER: Right. Again, I want to come back to the issue of judicial discretion which impacts on that calculous, but let's save that for a moment.

What does the city get back? Well, the city gets back a release from criminal prosecution and certainly it gets a release with respect to the complained-of conduct, the charged behavior in. the information, which is going to be the companion charging document to the plea agreement. In addition, the city gets a release with respect to any and all other criminal matters currently known to the U.S. Attorney's Office in the Middle District of Florida. Over the course of this investigation -- I think some of this has gotten back to you through various channels but there have been allegations lodged from various sources about illegal dumping at the Groveland Subdivision, for example. There have been allegations about illegal dumping at the City of Venice Airport over the years.

With respect to those two items in particular, the city has expressly acknowledged that those are, quote, matters known to the government, and thus matters for which the city is being given a criminal release here under this plea agreement. And anything else that they know about at the present time that is a criminal matter relating to the city of Venice will be resolved as part of this agreement. That's part of the broad release that the city gets back in exchange for this.

There are a couple of other components to the plea agreement that I want to mention. One is that under the terms of the agreement, once approved by the judge, the city is going to have an ongoing cooperation obligation with respect to the government's ongoing investigation and potential prosecution of certain individuals. Frankly --

SIMMONDS: What does that mean?

RODNER: Well, what it means is that the government right now has an ongoing criminal investigation and there are targets of the investigation that are other than the organizational target, i.e, the city. Whether or not the government ultimately believes it has enough evidence to indict any one or more individuals is a matter expressly within the province of the U.S. Attorney's Office. I certainly -- I understand from talking to Bob and Jon, and frankly it doesn't come as a surprise to me anyway based upon my experience with other clients, but I understand there is a tremendous desire on the part of the city to have the individual actors who brought this -- who placed the city into this situation be held accountable and brought to justice. I think it's a reasonable instinct to have. I think it's certainly something that the government is working hard to make happen. But I want to be perfectly clear. There are no guarantees that the city [sic] is going to charge anybody at all individually in connection with this matter -- the U.S. Attorney's Office.

SIMMONDS: I understand all that. In terms of cooperation to bring charges against individuals, what does that mean aside from making them available and making records available?

RODNER: I think that would be the core of the cooperation obligation. It's making individuals available to be debriefed and to prep for grand jury and trial sessions if appropriate. It's continuing to do what the city has already done, and that's to make relevant documentation available on a voluntary basis.

SIMMONDS: Which they can do by subpoena anyhow?

RODNER: Which they could certainly do by subpoena and, frankly, have done in the east.

SIMMONDS: My concern is not about the management people. I'm not anxious to prosecute anybody. My concern is that little guy on the tail end of this thing that either by implication or by direct instructions did something that he shouldn't have done, and in those terms what were his alternatives or what was anybody's alternative? Here you've got a mess of water to get rid of. You violate the law or what? Or you've got a real mess on your hands. What are the alternatives?

RODNER: Well, I guess a couple of answers to that question. One answer is that no longer working for the Justice Department, I can't tell you how they're going to come down in this particular case. I can tell you as a general matter that those types of considerations that you mentioned are considerations that federal prosecutors weigh all the time as to the level of the actor, the extent to which the actor was directed by supervisors, what sort of choices he had, whether the government needs to gain a cooperation of certain low-level employees to prosecute higher level individuals. All of those considerations play into charging decisions. I guess what I would want the city council to understand here today is that a decision to approve this plea agreement should not in any way, shape or form be contingent upon some expectation about what the government will do or won't do with respect to any individual employees. Those chips will fall wherever they fall and the city will have an unwavering obligation to cooperate with the government in whatever direction it chooses to go.

Just to tease out a hypothetical a little bit, let's assume the government were inclined to pursue the indictment of someone that we viewed as a relatively low level, less culpable individual, and let's further assume that we believe in our infinite wisdom the government should instead be focusing its scarce resources on somebody else. Notwithstanding any personal views that the city might have in that regard, the cooperation obligation is exactly the same, and in no way is the city going to have any flexibility to shape or withhold or modify its cooperation. If you buy into this, you can't thread the needle, you are working side by side with the government.

SIMMONDS: What you're saying to me then is that we're not placing the low-level employee in any greater jeopardy than he would be anyhow because they could get that by subpoena at any time?

THOMAS: Right. That was one of the points I was going to make. Two things. Number one, EPA has pretty clearly identified the individual targets that it contemplates pursuing, and none of those targets are currently employed by the city. That's point one.

Point two, as you've aptly identified, EPA has subpoena power. In fact, the city is not saying that we're going to make our staff available to you and order them to answer you truthfully because we can't do that. They have their right to assert Fifth Amendment privilege not to incriminate themselves. So if that's -we're not really changing things that much. I think what the first proposition is is that the city will make its records available and will allow EPA to interview folks during their workday probably. So there may be some sacrifice on the city's part in their productivity during those periods of time.

Otherwise, I think we pretty well know who the targets are. From interviewing folks and from investigating, I don't see where there's any low-level employees still employed by the city that are really in a lot of jeopardy. Of course I can't guarantee what may come out during an investigation.

NOBLE: The government is very, very far along in this investigation. It is in its wrap-up stages, they've conveyed to us. Although Seth's right, whatever they're going to ask for as part of the cooperation commitment, we're going to have to fulfil. What has been reported to us is that based on our most recent production of documents to the government, EPA and the U.S. Attorney's office have about everything that they will need from a paper trail right now. They do not contemplate additional subpoenas at this point. They may have some additional questions, but they don't anticipate a lot of voluminous document production going forward.

Likewise, with their interviews of current and former employees, they felt very comfortable that that process was nearing completion. They have six or seven current employees that they would like to chat with in an informal setting simply to review documents as to who prepared them, do you recognize this handwriting, what do these individual log entries stand for and mean on these documents. So they're pretty well done with that investigation right now.

RODNER: I don't disagree with anything Jon or Ron said. Just one qualifier. There is an obligation to encourage employees to cooperate, certainly nothing to infringe on their constitutional rights, and there is an express provision that recognizes their right to counsel and their right to invoke Fifth Amendment privilege and so on and so forth, but up to the invocation of the Fifth Amendment Right the city is obligated under this agreement to encourage its employees to cooperate.

TACY: Should we accept this, what does the effect of having plead out to three felony charges, what's the long-term effect on the city either with the regulators or with the other agencies?

RODNER: Good question. It's a question about the collateral consequences of a conviction.

NOBLE: There's a number of those under state and federal environmental programs. I think the more immediate that we would face on a practical day in-day out operating utility is that a convicted Clean Water Act defendant is going to be subject to some increased scrutiny. You have a contract operating entity with these plants right now that understand that the facilities are subject to a higher level of scrutiny already and they've conformed the facilities to all the permit requirements to the existing regulations. So I think the city stands in a pretty high level of comfort right now that things are in compliance. However, for future permit renewals and applications you could be subject to a higher level of scrutiny.

To the extent that additional enforcement proceedings were to_ come down the road,. your example of wet weather discharges, understanding that the system has physical constraints and we may have exceedances from discharge volumes, to the extent that those discharges occurred and we accurately reported them on the Discharge Monitoring Reports, this would be an enhancement or an aggravating factor on future penalty calculations in a civil context or a criminal context.

THOMAS: Or administrative.

NOBLE: Or even administrative if you're simply working with DEP. There is a section of the Clean Water Act that provides that a convicted Clean Water Act defendant forfeits the right to receive certain federal government -- it's largely EPA-tied grants and funding for a certain period of time. We have not evaluated that from the standpoint of how it would impact utility operations or anything else. I can tell you that's not something that typically comes up as an ongoing repercussion for a municipal defendant. That is more in the larger context of contractor debarment and things like that, but it's out there and it's an expressed provision of the Clean-Water Act. It could impact the city going forward.

The only other major thing that is not yet a matter of law but you'll see on this year's state legislative agenda is a concept from Florida DEP called performance-based permitting. For those entities, those utilities that have what they will call a negative enforcement record and a negative history, they're going to have a harder time getting their permits. Once they get their permits they're going to be subject to more frequent inspections as opposed to folks that have had a very clean track record. They're going to get their permits with supposedly an expedited and more lenient review and they're not going to be subject to as frequent inspections going forward.

Seth, do you have anything to add just on the standpoint of a conviction and the federal system generally?

RODNER: The only other observation I was going to make is that all of those collateral consequences that Ron just described would, of course, flow necessarily from taking this to trial and getting convicted as well.... To the extent Jon's analysis is correct, that these are essentially lay-downs for the government, you're sort of facing that in either scenario.

THOMAS: Entering into the plea agreement doesn't soften that.

BLACK: Because of the way the plea agreement is structured and what the federal authorities have elected to proceed with, we may be at higher risk if we go to trial.

VICE MAYOR JOHN MOORE: I think the explanation that you all have given us today is pretty extensive and has been very, very helpful, and Bob has given us this before, too. I think the thing that disturbs me is the fact that the United States Attorney has chosen to pursue this on a criminal basis rather than a civil basis. That's sort of the bottom line. That's really why at the last shade meeting we asked that Bob contact you and get you involved in this case. I gather what you're telling me is that we haven't been able to back off that criminal prosecution for the city of Venice?

NOBLE: Let me back up and go over that. We probably should have started the meeting with that. By the time we became involved, by the time Jon became involved, unfortunately sometimes by the time Bob even becomes aware of what's going on in the federal system that train has left the station. I can certainly tell you by the time we got involved there was no slowing that train down, there was no turning it around. Largely fueled by EPA, the U.S. Attorney's Office is absolutely committed to a criminal enforcement proceeding on this case.

There were very, very brief initial discussions with them about trying to unseat or get back on a civil track this proceeding and they made it very clear that that was not going to be an option for the city.

MOORE: Well, if that's the case, has the United States Attorney really been given any what I would call mitigating or extenuating factors that might impact the decision-making process as to whether to proceed criminally or civilly? For example, we don't have the prior city manager here who is part of the evidence in this case. We no longer have the upper management of the utilities department employed by the city anymore. We have taken very active and positive steps to change the administration of how we operate our utilities. We have an open-door policy by the current city Manager on disclosing everything, no matter what the consequences, to the press as well as to the
authorities.

We essentially have a whole new city council, I think a whole new attitude about these things. We are under the gun under the DEP settlement, a civil settlement, so there is going to be a continuing scrutiny, if you will, of the City of Venice for some time to come and a lot of other requirements that we have to comply with. To me, we are not the same city that existed in the summer and September of 2001. While I'm thinking about that, as I recall, the September of 2001 discharges occurred during tropical storm or Hurricane Gabrielle on Friday the 13th or 14th or whatever. It just seems to me -- I guess I'm asking you the question, have you compiled any of this extenuating data and gone to the United States Attorney and said you're really not prosecuting an individual, while you have the authority to prosecute a corporate entity, certainly, and everything you said is correct about the law in that regard, you're right, but the corporate entity is really the city council. The City of Venice is the corporate embodiment of the 19,000 or 20,000 citizens that live here in the city and they've elected us to do their business and we've appointed the staff and hired the staff and we direct them and so on and so forth, and yet the city is being asked to shoulder a criminal indictment, when it seems to me that in reality a civil resolution of this is the most appropriate, but that's my field.

My question to you is really have you really gone to the U.S. Attorney and advocated on our behalf that there ought to be some things they should look at before they make the final decision? And if it was made a long time ago, it was made long before we ever had the opportunity to do that. My second question is if this is a criminal prosecution, factually how does that play out before a United States District Court Judge? Do we have to appear and enter a plea?

RODNER: The plea agreement and the Information, which is the charging instrument that goes with it, will be filed simultaneously with the Court, then there will be an entry of the plea by an organizational representative, and then the federal probation office will analyze all the information and prepare a Pre-Sentence Report, PSR, which will be a recommendation from the probation office to the judge as to what the sentence should be.

Ultimately -- and this sort of goes back into the next point on my outline, which is the U.S. District Judge has full discretion to either abide by or modify. or altogether disregard the joint recommendations for sentence that are being submitted by the city and the U.S. Attorney's Office. So the caveat to all of this is that we're talking about a set number of days and we're talking about $5,000 per day. That's all well and good and it's certainly terribly persuasive to have the government making that recommendation as well, but at the end of the day the federal judge has full authority to essentially do whatever he or she wants to do in terms of fashioning a sentence, and there's no way we can foreclose --

MOORE: Obviously, but isn't that going to put us in the position of appearing and putting on a case?

RODNER: There will be a sentencing hearing, which is the forum at which this occurs.

MOORE: I want to keep the judge as low as possible obviously so what are we going to put on other than what the probation officer presents?

RODNER: Step by step here's what happens. The plea agreement and the Information gets filed, a copy gets routed to the probation office who does an independent, objective assessment of the situation, they prepare the Pre-Sentence Report which gets sent to the judge and circulated to the government and to the city. To the extent the probation office concurs fully in the joint recommendation of the city and the U.S. Attorney's Office, that's a very good thing. Then we've got a tripartite, consistent recommendation going to the judge.

THOMAS: And that would be anticipated in this context, wouldn't it?

RODNER: I would think it would be the rule rather than the exception in this situation.

THOMAS: It would be surprising if the probation office said the prosecutor who's lived with this for four years is wrong?

RODNER: I think that's right.

BLACK: Let me add something else. Only if we're very consistent and gracious in accepting what has been laid out in the plea agreement. If we get a council member or a staff person out in the media saying this is being jammed down our throat and this is bad, that's going to reflect as a negative approach where we've clearly demonstrated that these are slam-dunk issues. So we need to be very clear and consistent with that message.

COUNCILMAN BILL WILLSON: I read it as we want to go criminal because we want you to know the seriousness of it, but we're willing to ask for the least amount because we know what happened further down the line. I mean, that's the way I would look at it.

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