Environmental Bulletin

The deadline for introduction of new legislation in the 1999 Tennessee General Assembly has passed and this issue of the Waller Lansden Environmental Group Bulletin includes a summary of environmental, natural resources, and other regulatory bills of interest that have been introduced. Among other legislative proposals is a bill (SB 1854 / HB 1681) to establish a formal "Brownfields Program", which has the support of the Tennessee Homebuilders Association, and a bill (SB 1221 / HB 274) that would suspend the effectiveness of a water quality permit during the time that a citizen complaint filed under the Tennessee Water Quality Act is being investigated. If you would like more information about any of these bills, feel free to contact any of the attorneys listed at the end of this Bulletin.

Prior issues of this Bulletin have discussed Aquatic Resource Alteration Permit (ARAP) regulations proposed by TDEC. Following the Tennessee Water Quality Board's decision on December 15, 1998 to initiate formal rulemaking proceedings, a draft of the proposed rules was published in the January 15, 1999 issue of the Tennessee Administrative Register.

TDEC held its first public hearing on the proposed rules on February 25, 1999 in Nashville. At that public hearing, a number of environmental community representatives and activists provided comments for the rulemaking hearing record, generally criticizing the proposed rules as not being strict enough and criticizing TDEC for developing a new draft of the proposed rules (which was first distributed at the public hearing) without public input since the January 15 TAR version was published. No representatives of the regulated community spoke at the public hearing.

Public hearings on the ARAP rulemaking proposal will also be held as originally scheduled in Knoxville on March 2, 1999 and in Memphis on March 4, 1999. In addition, environmental community representatives requested that additional public hearings be held and TDEC announced at the February 25 hearing that another round of public hearings (presumably also in Nashville, Knoxville, and Memphis) will be scheduled, with some or all to take place in the evening to avoid conflicting with normal working hours of members of the public.

TDEC also unveiled 9 new draft general ARAPs at the February 25 ARAP rulemaking hearing, as follows:

Relocation of Intermittent Streams

Impoundment of Intermittent Streams

Culverting of Small Streams

Maintenance Activities

Surveying & Geotechnical Exploration

Wetlands Restoration & Enhancement

Dredge & Fill in Reservoirs

Bank Stabilization Activities

Development of Springs

Pursuant to the Tennessee Water Quality Control Act, the Commissioner of TDEC is authorized to issue general permits without a rulemaking proceeding to regulate "a category of activities." Nevertheless, TDEC announced at the February 25 public hearing that it planned to accept public comment on the proposed general ARAP permits and to further develop them into final form in conjunction with the ARAP rulemaking process.

The manager of Environmental Waste Reductions, Inc., recently pleaded guilty to two counts of illegally dumping medical waste and animal carcasses at a waste processing and consolidation facility in Wilson County. Environmental Waste Reductions was formerly based in Atlanta, but no longer exists due to being sold in bankruptcy. The company's Lebanon facility had contracts with Metro Nashville and several Middle Tennessee companies to process and dispose of waste.

The violations occurred during the summer of 1997 when employees of the company cleaned out medical waste containers in a parking lot. The waste, which included human blood, gauze, a used syringe, and animal carcass wastes, subsequently ran into a storm drain and then into an open ditch. In announcing the guilty plea, then-Tennessee Attorney General John Knox Walkup said, "Environmental crimes are serious matters and should concern everyone."

EPA and U.S. Fish & Wildlife Service Propose Memorandum of Agreement on Clean Water Act Consultation

The U.S. Environmental Protection Agency (EPA) and the U.S. Fish and Wildlife Service (FWS) recently issued a public notice and requested comments on a proposed Memorandum of Agreement (MOA) calling for EPA to consult with FWS on various programs and decisions under the Clean Water Act (CWA). See 64 Fed. Reg. 2742 (Jan. 15, 1999). If this MOA is implemented, EPA would enter into formal consultation with FWS on the impact to endangered and threatened species: (i) when EPA establishes national water quality criteria; (ii) when EPA approves state water quality standards; (iii) when EPA approves state NPDES permit programs; (iv) when EPA reviews state-issued NPDES permits; and (v) when EPA issues federal NPDES permits. This MOA represents a significant intrusion of endangered species concerns into CWA programs. In states with numerous listed species that live in or depend on water, this MOA will likely make it more difficult to obtain discharge permits, impose more stringent permit limitations, and increase burdens on state agencies implementing CWA programs. Comments on this proposed MOA must be submitted to EPA by March 16, 1999.

Sealed Sources of Radioactivity to Be Further Regulated

The U.S. Nuclear Regulatory Commission (NRC) has proposed new regulations that would require companies that own sealed sources of radioactivity to take additional steps to prevent these sources from being disposed of improperly, lost, or stolen. The regulation would affect companies that possess such sources of radiation as exit signs, calibration standards, thickness gauges, and level gauges. The NRC proposal includes registration requirements, compliance verification procedures, storage time limitations, inventory performance, and appointment of a responsible individual. The NRC proposal contains provisions that affect holders of both specific and general licenses.

SEC Imposes Sanctions on Company and Officers for Failure to Disclose Environmental Liabilities

The Securities and Exchange Commission (SEC) imposed sanctions on and issued cease and desist orders to a company and some of its officers for failing to disclose the existence of known environmental liabilities in the company's periodic reports to the SEC. Lee Pharmaceuticals, a California manufacturer of dental and cosmetic products, learned of high levels of contamination in its soil and groundwater in 1987. The California Regional Water Quality Control Board ordered Lee to investigate the contamination in 1988 and 1989, and Lee's consultant confirmed the contamination in written reports and letters to Lee in 1989 and 1990. A second environmental consultant observed Lee spilling chemicals at an area already confirmed to be highly contaminated, and the Water Board identified hazardous chemicals leaking into the soil from industrial waste equipment. In addition, Lee was named as a potentially responsible party (PRP) at a California Superfund site.

The SEC found that Lee's Chairman of the Board, President and Chief Executive Officer, and Vice President of Finance and Chief Financial Officer violated or willfully violated provisions of the Securities Exchange Act of 1934 and the rules promulgated thereunder. Lee committed the violations by filing 10-K and 10-KSB reports to the SEC from 1991 to 1996 that contained misrepresentations and omissions about Lee's environmental contamination, investigation, cleanup responsibilities, and liabilities. Specifically, the SEC found that Lee materially understated its environmental responsibilities, misstated that EPA did not require a cleanup, falsely stated that it had no information about cleanup costs, failed to disclose that it was conducting an environmental investigation, falsely claimed that it had complied with environmental protection laws, failed to disclose environmental test results, and falsely denied it was a PRP at an EPA Superfund site.

The SEC concluded that Lee's misrepresentations and omissions were material because reasonable investors would deem it important that Lee owned highly contaminated property, continually failed to comply with environmental laws, was named a PRP and had not been excused by EPA of cleanup obligations, and possessed estimates of the cleanup costs at its own property and the potential liability estimates at the Superfund site. The SEC, concluding that Lee used its SEC filings from 1991 to 1996 to mislead investors about the nature and extent of Lee's environmental responsibilities and liabilities, sanctioned and issued cease and desist orders to the company and its officers. The SEC's Order against Lee and its referenced officers was issued contemporaneously with its acceptance of an Offer of Settlement made by the company and officers.