Regulatory agencies, regulated entities and environmental "citizen" groups agree that environmental auditing is a valuable tool for identifying problems which should be corrected in improving a company's environmental performance. However, these "stakeholders" strongly disagree about the extent to which a company that conducts a voluntary environmental audit and corrects violations should be protected from having information revealed in the audit disclosed and used against it in civil or criminal enforcement proceedings. At the center of this sometimes vigorous debate is the fundamental issue of whether such a company should be able to invoke a "self-evaluative privilege."
The United States Environmental Protection Agency ("EPA") and the United States Department of Justice ("DOJ") have published several policy statements ostensibly intended to encourage companies to conduct environmental audits but have steadfastly maintained that there should be no privileges from disclosure or immunity from enforcement sanctions for violations disclosed in the course of an audit. Many states have enacted audit privilege laws which create a "state" self-evaluative privilege to shield audit results from disclosure, provide qualified immunity from enforcement sanctions or provide some combination of each. However, the lack of consensus among federal agencies and states creates uncertainties for companies that would benefit by conducting audits. It is clear that a national standard would be the best solution to this problem. This paper will examine the application of the self-evaluative privilege; review policies of federal agencies which purport to "encourage" voluntary environmental audits but oppose audit privilege legislation; discuss state laws creating audit privileges and the resulting conflicts with EPA; and suggest strategies for conducting audits.
- THE SELF-EVALUATIVE PRIVILEGE
- The Need for an Effective Self-Evaluative Privilege
In the past several years, the enactment of numerous complex environmental laws has overwhelmed the environmental compliance capabilities of many regulated entities. Increased enforcement efforts, stiffer penalty assessments based in part on a history of noncompliance as well as criminal penalties and citizen suits have motivated regulated entities to adopt or enhance internal environmental compliance monitoring/management systems. Environmental auditing has become an essential component of an effective corporate environmental management system. Unfortunately, the documents or "paper trail" created by internal auditing practices may be subject to disclosure through discovery in litigation or in enforcement inspections. The use of audit results against a company in civil and criminal enforcement actions presents a serious disincentive to a company that is contemplating self-auditing.
To protect audit results from disclosure, many companies conduct environmental audits under the direction of an attorney, seeking to rely on the attorney-client privilege to maintain the audit results as confidential. However, the attorney-client privilege and work-product doctrine have limited application to voluntary environmental audits, which are typically conducted in the ongoing course of business rather than in preparation for litigation. The procedures that must be followed in order to preclude waiver of the attorney-client privilege are cumbersome. Further, involving an attorney in routine compliance audits may increase compliance costs unnecessarily. Thus, these traditional privileges may not be practical from a cost perspective or effective in protecting the results of routine compliance audits.
The self-evaluative privilege recognizes a privilege for corporate self-evaluation on the basis of important public policy considerations: when a company conducts a thorough environmental audit, discovers and corrects violations, the environment and the public benefit through reduced pollution and improved environmental performance. Application of the self-evaluative privilege to environmental auditing provides tangible incentives to regulated entities. However, courts have rarely applied this privilege to compliance audits, leaving audit results vulnerable to disclosure in governmental investigations and discovery.
EPA and DOJ have refused to restrict their enforcement discretion or recognize any privilege or immunity with regard to violations disclosed in an environmental audit. Further, while many states have enacted audit privilege laws, state laws do not restrict enforcement actions by federal agencies. Therefore, companies (particularly those with facilities in different states) face a patchwork of laws and policies addressing environmental compliance audits without adequate assurance that they will not be penalized if they discover, correct and report a violation. Thus, there is a clear need for an effective privilege which would provide companies with incentives to conduct environmental audits and the added certainty that the audit results would not be used in an unduly punitive manner.
- Development of the Self-Evaluative Privilege
The concept of a self-evaluative privilege was first recognized in Bredice v. Doctors Hospital, Inc., 50 F.R.D. 249 (D.D.C. 1970), aff'd mem., 479 F.2d 920 (D.C. Cir. 1973), which held that information of a self-evaluative nature contained in a report is privileged. The court recognized that a hospital's peer review system would function better without the potential that comments contained in the hospital committee report could be disclosed and thereby have a chilling effect on candid self-examination. The court was careful to hold, however, that facts underlying the self-evaluation are not privileged.
The self-evaluative privilege has been recognized in limited situations, including hospital committee reports, internal investigatory reports and equal opportunity employment information submitted to the government. Courts upholding the privilege have generally required three elements. First, the audit must be the product of an internal review process that serves the public interest. Second, there must be a risk that disclosure of the audit will cut off candid review. Id. at 250. Finally, the audit must be prepared for internal use only. Emerson Electric Co. v. Schlesinger, 609 F.2d 898 (8th Cir. 1979).
In environmental litigation, EPA has successfully countered attempts by companies to invoke the self-evaluative privilege by arguing that its interest in obtaining access to information not otherwise readily available far outweighs the public/corporate interest in the confidentiality of internal audits. Courts balancing the public interest in favor of disclosure against the interest in promoting self-evaluation generally have refused to extend this privilege to environmental audits. In an "exceptional" case, Reichold Chemicals, Inc. v. Textron, Inc., the court recognized the "strong public interest in promoting the voluntary identification and remediation of industrial pollution," and concluded that the self-evaluative privilege promotes the interests of justice and should be applied. However, since Reichold involved litigation between private parties, rather than an enforcement action by a regulatory agency, its precedential value is limited.
- Federal Policies and Proposed Legislation
- EPA's Initial Policy Statements
On November8, 1985, EPA published its first policy statement on environmental audits in the form of "interim guidance" to encourage "regulated entities subject to environmental regulations to institute environmental auditing programs to help ensure the adequacy of internal systems to achieve, maintain and monitor compliance."10 In this guidance document, EPA articulated fundamental positions which have proved to be contentious to private industry and many states. EPA announced it would not offer incentives in the form of fewer inspections or reduced enforcement to companies conducting voluntary audits:
EPA will not promise to forgo inspections, reduce enforcement responses, or offer other such incentives in exchange for implementation of environmental auditing or other sound environmental practice. Indeed, a creditable enforcement program provides a strong incentive for regulated entities to audit. Although environmental audits may complement inspections, they are in no way a substitute for regulatory oversight.