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Sentencing and the Alternative Fines Act in Clean Air Act Enforcement—The Difference Between Billions and Millions in U.S. v. CITGO

The events in U.S. v. CITGO serve an important learning lesson for both criminal defense attorneys and environmental practitioners of the significance of the Alternative Fines Act, 18 U.S.C. § 3571(d), in the sentencing process in environmental criminal cases and how federal prosecutors may attempt to leverage increased criminal fines and penalties through its provisions.

In late 2012, a federal district court denied the request of federal prosecutors to empanel a sentencing jury in U.S. v. CITGO Petroleum Corp., Case No. 06-cr-563 (S.D. Tex. Nov. 6, 2012), for the purpose of determining facts necessary to support a fine associated with CITGO’s “gross, pecuniary gain” under the Alternative Fines Act. The court so held because a sentencing jury “would unduly complicate or prolong the sentencing process.” As a result, the government will not be able to obtain the sentence it sought based on its proffered calculation of more than $2 billion under the Alternative Fines Act—aimed at recouping double the refinery’s total profits over a ten year time span. Instead, the court’s ruling means the ultimate sentence will likely be closer to the $2 million maximum fine under 18 U.S.C. § 3571(c) versus the nearly $2 billion sought under the alternative fines provision of 18 U.S.C. § 3571(d).

In 2007, a federal jury convicted CITGO Petroleum Corp. and CITGO Refining and Chemicals Co., L.P. (CITGO), each on two felony counts of the Clean Air Act (CAA), 42 U.S.C. §§ 7413(c)(1) and 7411(e), for operating two oil water separator tanks in its wastewater treatment plant at its Corpus Christi refinery without the proper emission control devices designed to control volatile organic compounds. In a separate bench trial several weeks later, CITGO was separately convicted on three misdemeanor counts for unlawful taking of migratory birds under the Migratory Bird Treaty Act (MBTA), 16 U.S.C. 703(a).

Following its 2007 conviction, CITGO, as an organizational defendant, became subject to two potential sentencing schemes under 18 U.S.C. § 3571:

Maximum fine of $2,000,000 (i.e., $500,000 per count, per entity, under 18 U.S.C.§ 3571(c)); or
Twice the “gross, pecuniary gain” derived by CITGO under 18 U.S.C. § 3571(d) “unless imposition of a fine . . . would unduly complicate or prolong the sentencing process.”(i.e., the alternative fines provision).

CITGO argued that its conduct did not lead to any gross, pecuniary gain. The government, on the other hand, asserted that CITGO’s noncompliant operation of the wastewater treatment plant was “the single indispensible operation at the facility that services every refining process, which in turn generates every penny of revenue.” Consequently, the government calculated the gross pecuniary gain at $1.1 billion, based on all of the refinery’s profits between 1994 and 2003.

The government also previously requested that the court order CITGO to pay $44 million in “community service obligations” in addition to a criminal fine of $2,090,000 ($2 million for CAA and $90,000 for MBTA violations). But that request was denied by the court because it was directly at odds with the recent U.S. Supreme Court ruling in Southern Union Co. v. United States, ___ U.S. ___, 132 S. Ct. 2344 (2012), holding “the rule of Apprendi applies to criminal fines,” meaning “any fact that increases” the amount of a criminal fine “beyond the prescribed statutory maximum must be submitted to a jury, and proved beyond a reasonable doubt.” Hence, the government’s recent request to empanel a sentencing jury because the 2007 trial jury never made specific, factual findings on these points.

In denying the government’s motion, the court noted the time involved in seeking an unbiased jury given the significant local press coverage of CITGO’s conviction, and the burden posed by “the complex determinations involving refinery processes and pecuniary gain without the benefit of being present at the initial trial, perhaps requiring significant evidence to be presented again.” The court also referenced the existence of 313 sentencing hearing exhibits, as many as 16–20 potential witnesses, and the fact that the underlying trial lasted 27 days.

Not surprisingly, the government filed a motion for reconsideration. Based on a 1930 Supreme Court case and Fed. R. Crim. P. 23, the government argued that it had a right to a constitutional jury to resolve issues of fact in a criminal case. The government also took umbrage with the court’s position about unduly complicating or delaying the sentencing when nearly five years passed before the court set a sentencing date. The court, however, denied the government’s motion for reconsideration.

In summary, the sentencing process for environmental crimes can be fraught with traps for the unwary, including the provisions of the Alternative Fines Act. Practitioners need to be particularly vigilant to the fact that federal prosecutors may attempt to seek a criminal fine based on the gross, pecuniary gain associated with the criminal conduct which can be hundreds or thousands of times more than the maximum fines otherwise permitted under the substantive environmental statute or other title 18 provisions.