Energy and Environment Monitor

How to Make a Bad Case Worse

August 9, 2017

By: Blair M. Gardner

The U.S. Court of Appeals for the Seventh Circuit issued an opinion that serves as a reminder to every attorney that sometimes the best advice to a client is to accept a penalty and forego an appeal. It may be distasteful, but as I learned years ago in law school “bad facts make bad law”. Consider the following.

National Power Corporation designs and manufactures custom battery packs, including ones using lithium batteries. Although batteries are normally very safe items, they do present a risk of fire. For this reason they are regarded as “hazardous materials” by federal agencies such as the Pipeline and Hazardous Materials Safety Administration (PHMSA) and the Department of Transportation (DOT) as well as international agencies. Because they are deemed hazardous, their shipment as well as their disposal is regulated. Shipments of hazardous materials mean that documentation of procedures will always be an element of agency oversight as National Power would learn.

In 2010 a Federal Aviation Administration agent conducted an inspection of the company’s shipment procedures. Among the issues the agent examined was its testing of the batteries before shipment, or a waiver by PHMSA that authorized shipping without testing. When the company could not produce required documentation on its testing of its products, the inspector found eleven violations of PHMSA’s hazardous material regulations and filed an administrative complaint with DOT. Following a hearing before an administrative law judge (ALJ), a civil penalty of $12,000 was awarded the FAA. The company appealed the decision to the Administrator of the FAA claiming that its violations were not deliberate, and therefore, not “knowing” as required by the regulations. It also claimed that the $12,000 civil penalty was excessive and “arbitrary and capricious”. The FAA also appealed on other grounds. The result was a finding that the ALJ had reached some erroneous legal conclusions, but the major consequence was an increase in the civil penalty to $66,000. The company then requested review before the Court of Appeals. It affirmed following a brief discussion of what “knowing” conduct means under FAA regulations and concluded that the civil penalties were rationally imposed.

But wait, there’s more. In its brief to the Seventh Circuit, National Power cited a Wikipedia article about a British comic book character, “Judge Dredd” (also the subject a very bad 1995 movie starring Sylvester Stallone), a “street judge” empowered to arrest, convict and execute offenders. Apparently, the purpose in doing so was to illustrate how arbitrary the civil penalty was. The court noted this “authority” in footnote, in its opinion. It is a recognition that every lawyer who ever presents an appellate case should hope to avoid.

So, what can we learn from this. First, recognize when the facts are bad and that there is nothing that can be done in the case to make them better. Second, the agency inspector may have been overzealous, but the violations he noted were based on the facts he found. Third, the $12,000 penalty might have hurt, but it could have – and did become – far worse. Finally, the three judges on the panel will probably remember for a long time National Power’s citation to a comic book as legal authority.  A copy of the case can be found here. 

This article was written by Blair M. Gardner, Jackson Kelly PLLC.