United States: Shipment of Hazardous Materials by Air

Any company that ships hazardous materials, which includes wastes (i.e., "hazmat") by air can face significant civil or criminal penalties if it violates the hazardous materials regulations (HMRs). Unfortunately, many companies do not fully understand the HMRs or realize that they are subject to Federal Aviation Administration’s (FAA) jurisdiction. Some companies also do not have in place proper hazmat shipping procedures or employee hazmat training.

In 2004, the FAA assessed over $3.7 million in civil penalties for HMR violations. A company is usually first apprised of a potential HMR violation when it receives a telephone call from a shipper or when the company is visited by a seemingly friendly FAA special agent seeking information about a particular shipment. The FAA visit is often followed by a Letter of Investigation (LOI), which requires a response within 10 days. Depending on the relevant facts and the company’s response to the LOI, the FAA may (1) issue a Notice of Proposed Civil Penalty (NPCP) seeking a substantial civil penalty or, worst case scenario, (2) refer the matter to the U.S. Department of Transportation Office of Inspector General (OIG) for criminal prosecution. Without question, the HMR enforcement process is complex and often frustrating and, as a result, many companies fail to maximize their bargaining position during FAA settlement negotiations. This article provides an overview of the HMR enforcement process and discusses some of the ways in which companies may maintain a favorable negotiating position during the HMR civil enforcement process.

The Federal hazardous materials laws authorize the Secretary of the U.S. Department of Transportation (DOT) to regulate the transportation of hazardous materials. The Pipeline and Hazardous Materials Safety Administration (PHMSA) writes the HMRs implementing the requirements of the Federal law. The DOT Secretary delegates the enforcement of the HMRs to each modal administration: the FAA, Federal Motor Carrier Safety Administration, Federal Railway Administration, PHMSA, and the United States Coast Guard. Each administration has sweeping jurisdiction with respect to HMRs enforcement. Federal law provides that the DOT Secretary "...may authorize any officer, employee, or agent to enter upon, inspect, and examine, at reasonable times and in a reasonable manner, the records and properties of persons to the extent such records and properties relate to: (1) the manufacture, fabrication, marking, maintenance, reconditioning, repair, testing, or distribution of packages or containers for use by any ‘person’ in the transportation of hazardous materials in commerce; or (2) the transportation or shipment by any "person" of hazardous materials in ‘commerce.’" In short, DOT special agents have a significant amount of authority to investigate alleged HMR violations.

Since the 1996 ValuJet accident, the FAA has increased its enforcement of the HMRs by hiring an army of special agents and attorneys to investigate and enforce the HMRs. The FAA’s primary method to enforce the HMRs is through the issuance of civil penalties, which often can lead to negative publicity for target companies. Although the FAA assessed over $3.7 million in civil penalties in 2004, the total proposed civil penalty amount was likely between $5-6 million. HMR civil penalties range from $250 to $32,500 per violation, while criminal penalties range from $250,000 to $500,000 and imprisonment for not more than 10 years per violation. As a general matter, hazardous materials civil penalties are usually higher than other Federal Aviation Regulation violations because a typical undeclared hazardous material shipment can involve at least seven separate regulatory violations, which can equate to a substantial $227,500 maximum civil penalty. Companies are often justifiably shocked by the size of the civil penalty for shipping, for example, a single can of spray paint or a gallon of adhesive.

Companies can also be surprised when the FAA issues a press release, usually entitled "Civil Penalty Proposed Against Company X for Alleged Hazardous Materials Violations." The FAA usually issues press releases for enforcement actions involving proposed penalties of $50,000 or more and may even issue its press release before a company has the opportunity to respond to the allegations, which may be without merit. While the public has a right to know about the FAA’s activities, such right should be balanced with the rights of companies. The mere allegation of a violation places the company in a negative light among its industry peers and often times leads to unwarranted negative consequences. Also, if the allegations are later found to lack merit during settlement discussions or at a hearing, the FAA is unlikely to issue a retraction.

At the start of its investigation, the FAA will send a company a LOI, which apprises the company of the allegations and seeks an explanation. This is a critical juncture in the enforcement process because it is the first opportunity to respond to the allegations. The FAA hopes that the company will admit to everything – which frequently happens – and the special agent will then send case to the FAA attorney to issue the NPCP. Rarely, if ever, do companies benefit from admitting to the violations. Instead, it is best to discuss the case with an experienced enforcement attorney to assess the merits of the FAA’s case before submitting a response. It is important to note that the enforcement process is an adversarial process and companies frequently have the mistaken perception that the FAA special agent is a friend only seeking some information to "clear up this misunderstanding" and the case will simply be closed with a slap on the wrist. The FAA seldom closes hazmat cases with a slap on the wrist.

A LOI response should only stress those items that are (i) exculpatory based on well-established FAA precedent and (ii) mitigating based on the FAA policy guidance. It is very difficult to defend a company against a hazmat NPCP after the company has admitted to all of the allegations in its LOI response. Companies should also highlight any immediate pro-active corrective action.

After the FAA’s receipt of the LOI response, the FAA special agent may request additional information regarding the facts, any corrective action, or the presence of an employee hazmat training program. Upon completion of the investigation, the FAA special agent will forward the case to an FAA attorney for further enforcement action. The LOI response will become part of the Enforcement Investigative Report (EIR). The EIR contains all of the necessary enforcement information: witness statements, airway bills, shipment photos, material data safety sheets, civil penalty recommendation, etc.

Upon receipt of the EIR, the FAA attorney will assess the merits of the case and determine whether to seek a civil penalty consistent with the special agent’s recommendation or deviate from the special agent’s guidance. The FAA attorney will prepare a NPCP setting forth the specific allegations and the basis for the civil penalty amount. The NPCP will also advise companies of their options, which include accepting a finding of violation and paying the entire civil penalty amount or requesting an informal conference. It is always wise to request an in person informal conference and a copy of the EIR.

At the informal conference, the company should be thoroughly prepared to address all aspects of the case and the methodology underlying FAA’s civil penalty calculation. The FAA uses its civil penalty guidelines to determine the proper civil penalty amount based on various facts and circumstances. However, the FAA’s calculations are very subjective and involve a significant amount of prosecutorial discretion. The guidelines contain a series of questions designed to assist the FAA to evaluate a case. The questions involve the: (i) nature and circumstances of the violation, (ii) violator’s degree of culpability, (iii) shipment preparation, (iv) prior violation history, (v) damage or harm to persons, and (vi) other aggravating or mitigating factors. The FAA will also consider a company’s ability to pay the proposed civil penalty and any corrective action.

Settlement negotiations with the FAA can be contentious depending on the particular FAA Region or FAA attorney. Our experience has shown that some FAA attorneys take a much more aggressive position during settlement negotiations, while others are much more reasonable. Perhaps two of the most frustrating aspects of settlement negotiations are the FAA’s unwillingness to accept voluntary disclosures and its unwillingness to issue compromise orders.

The FAA will not accept voluntary disclosures for hazardous materials violations, despite its willingness to do so for every other type of regulatory violation. The FAA’s position is that airlines are already obligated to report hazmat violations under the HMRs and, therefore, FAA may not accept voluntary disclosures. The regulations do not prohibit non-airline voluntary disclosures. In fact, most of the companies that violate the HMRs are not airlines. As a result, there have been cases where well-intended companies inform the FAA of a hazmat violation only to receive a NPCP based on the same facts that the company disclosed to the FAA.

The FAA civil penalty enforcement guidelines provide that the FAA may compromise any civil penalty action with the payment of a civil penalty, but without a finding of violation. This allows the FAA and a company to settle a matter without costly and time consuming litigation, which ultimately serves the public interest. However, the FAA has taken the position as a matter of policy that it will not compromise hazardous materials civil penalty actions. Accordingly, companies that are sensitive to the impact of a finding of violation are forced to weigh the costs of litigation and the impact of a finding of violation. Unfortunately, the FAA has no real litigation costs or risks despite the very real drain on the FAA’s scarce resources.

If the parties are unable to reach a settlement, the FAA will issue a Final Notice of Proposed Civil Penalty and the company has the option to pay the proposed civil penalty or request a hearing. It usually makes sense to request a hearing because it preserves a company’s due process rights and it extends the time in which to reach a settlement. When a company requests a hearing, the FAA will serve the company with the Complaint, which is identical to the NPCP. The company is then required to file an Answer to the Complaint. Simultaneously, the case is referred to the docket of a DOT Administrative Law Judge to conduct a settlement conference and set the discovery schedule, hearing location, and hearing date.

In sum, the hazardous materials compliance and enforcement process can be frustrating and time-consuming. Accordingly, it makes sense to discuss the matter with an experienced hazmat enforcement attorney before responding to the FAA’s LOI request. Our experience has shown that many reasons often exist to reduce a civil penalty and that it is worth the effort to defend a hazmat case vigorously. The best advice we can offer is to avoid the enforcement process entirely by ensuring that your company has a comprehensive hazmat training and compliance program. As with most regulatory programs, proper prevention and pre-planning can reduce the risk of exposure. We routinely assist companies with hazmat program compliance efforts and would welcome the opportunity to assist your company.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.