Saturday, March 19, 2005

Of Fish and Men: Corporate Penalties And The Law

One of the favorite anecdotes told by critics of OSHA's ineffectiveness is that the penalty for causing the death of a worker by willfully violating safety laws is half the maximum for harassing a wild burro on federal lands.

Over the last few days, we've learned some other things. The penalty for killing fish and crabs is far higher than the penalty for killing a worker. And the penalty for running a yellow light is far higher (proportionately) than the penalty for systematically hiring and abusing undocumented immigrant workers.

Lets discuss our system of laws and the penalties for breaking those laws. I'm no lawyer, but I think I understand the way it's supposed to work: people and corporations are supposed to obey the law or else be punished in a way that will serve not only as a disincentive to repeat their crime, but also to deter others from following down the same wayward path.

For example, while visiting my sister at a family reunion in Eugene, Oregon last summer, I was so busy enjoying the sites of that lovely town, that I neglected to stop when the traffic light turned yellow. As the rear end of my car was still in the intersection when the lite turned red, I was awarded a citation from one of Eugene's friendly motorcycle cops, along with a $230 fine -- an amount more than sufficient to deter me and every member of my family from even thinking about violating a traffic law.

Somehow, it doesn't work that way if you're a large corporation -- or even a small company -- especially if your only crime is killing a worker.

Today our favorite company, Wal-Mart, made the front page of the NY Times:
Wal-Mart Stores Inc., the nation's largest retailer, agreed to pay $11 million to settle a federal investigation that found hundreds of illegal immigrants were hired to clean its stores, government and company officials said yesterday.

U.S. officials described the settlement's dollar figure as the largest of its kind. But Wal-Mart admitted no wrongdoing in the case, saying it was unaware contractors were employing illegal immigrants.
In fact, Wal-Mart claims it wasn't even a fine, but rather "a voluntary payment that would be used to help ensure compliance with immigration laws."

Eleven million dollars sounds like a lot of money, But Nathan Newman puts it in perspective:
Prosecutors announced they were dropping all criminal charges against Wal-Mart for its use of contractors employing undocumented workers in exchange for paying an $11 million fine, a hefty sounding amount but a pittance for a company with $288.2 billion in sales last year. Let's put it this way-- this is an equivalent financial hit to an average person making $50,000 per year being hit with a $1.90 fine for illegal activity.

The double standard for corporate crime is astounding-- we destroy the lives of young people for minor drug crimes, but corporate executives can break the law and steal pay from their workers, and all they get it a financial slap on the wrist.
Yesterday, the US Justice Department and the Environmental Protection Agency announced a $10 million fine against Motiva Enterprises. Motiva is an oil refining and retail business owned by Shell Oil Company and Saudi Refining, Inc.
On July 17, 2001, Tank 393, a 415,000 gallon capacity tank at Motiva’s Delaware City Refinery, exploded while containing spent sulfuric acid, which is a mixture of sulfuric acid, water, and hydrocarbons. The explosion killed one worker, Jeffrey Davis, and injured numerous others. Spent sulfuric acid from the tank farm spilled into the Delaware River, resulting in thousands of dead fish and crabs.


Following the explosion, EPA criminal investigators gathered evidence which indicated that Tank 393 had a long history of problems. Among other things, Tank 393 had numerous localized corrosion and leaks during the previous eight years, including six leaks from June 1998 to May 2001. Company inspectors repeatedly recommended that Tank 393 should be taken out of service as soon as possible for an internal inspection, but no internal inspection was conducted after 1994. Motiva also switched Tank 393 from storing fresh sulfuric acid to spent sulfuric acid without conducting a full engineering review (known as a management of change review) that would have required technical experts to analyze the changes to account for the flammable hydrocarbons in spent sulfuric acid.

Shortly before the explosion, according to the statement of facts, Motiva had several warnings from its own employees about Tank 393’s problems. Nevertheless, workers were sent to acid tank farm to repair the catwalk connecting the tanks on July 17, 2001, and a hot works permit was issued for the job. During the afternoon of that day, flammable vapors from Tank 393 reached a heat source, and the resulting explosion caused the Tank 393 to separate from its foundation pad. Mr. Davis’s body was never recovered. Additionally, approximately 99,000 gallons of sulfuric acid drained into the Delaware River for days after the explosion.
A couple of observations:

Although this is the largest fine in Delaware environmental history, those closest to the accident weren't happy:
"I was disappointed that the federal government chose not to charge any individual for criminal actions," Sen. David B. McBride, D-Hawks Nest said. "While this is a very steep penalty, I'm concerned that it will just be viewed by some as a cost of doing business."

Mary Davis, the widow of Jeff, would not comment publicly on Thursday's action, according to Matthew A. Casey, one of the attorneys who represented the family in a separate lawsuit. The company settled that case for $36.4 million.

Davis called for harsh penalties against the company in an earlier state criminal prosecution. In 2003 she wrote: "We were not even left with his body to bury. Motiva destroyed our hopes, our dreams and our future."
Jeffrey Davis's body was completely dissolved by the acid he fell into. Only the steel shanks of his boots were found.

OK, $10 million. A good chunk of change, but not a lot for a company of that size. Let's look at it now in a slightly different perspective. If Motiva hadn't sent a bunch of fish and crabs to meet their maker, we wouldn't be talking about a violation of environmental laws; we'd be talking only of violations of the Occupational Safety and Health Act, which resulted in a paltry $175,000 penalty in 2002. That fine, originally a "willful" violation (meaning the company was aware of the hazard) was reduced to an "unclassifed" violation, which, in the words of Robert Gombar, the attorney representing Motiva, avoids "unnecessary complication presented by harmful labels." OSHA also refused to seek criminal prosecution, which didn't sit well with the family or the state of Delaware, as recounted in a December 2003 NY Times article by investigative reporter David Barstow:
In Delaware, the state's congressman and senators wrote to [Assistant Secretary of Labor John] Henshaw this year and demanded that he account for "OSHA's inexplicable decision" to reduce the violations in Delaware City. OSHA's handling of the case, they wrote, had compounded "the emotional trauma for the family."

In response, OSHA's deputy administrator, R. Davis Layne, wrote that OSHA had simply "exercised its prosecutorial discretion" to settle a contested case. Families, he explained, are not consulted "regarding confidential litigation matters."

But if OSHA saw no potential for a criminal case, Delaware's attorney general, M. Jane Brady, did. In an interview, she recalled the stunned reaction of one Motiva lawyer when she announced her intention to seek charges: "You got to be kidding me."

This summer, Motiva pleaded no contest to criminally negligent homicide and assault, only the second such prosecution in state history. The company was ordered to pay $46,000 in fines, then the maximum under state law, and $250,000 more to a victims fund. Soon after, Delaware changed its law to allow far higher fines.
In fact, however, even the $175,000 OSHA fine against Motiva was far higher than normal OSHA penalties for killing workers.

I wrote a tongue-in-cheek article last month about the low $5,800 penalty handed down to K&M Construction for killing a worker, John Duesler, last July in an unprotected 9 foot deep trench.

But even that fine sounds huge compared with this:
A Napa construction company has been fined $300 in connection with the industrial death of one of its workers.

The accident, which happened on Sept. 3, 2004, took the life of Rebecca Kogan, 39, of Menlo Park. Kogan had been employed with Tri-County Construction as a grade checker for just a couple of weeks at the time she was killed.

Kogan was run over by one of the monstrous wheels of a Caterpillar motor grader, according to authorities. She was pronounced dead at the site on Tower Road, in south Napa County.

After investigating the accident, the California Division of Occupational Safety and Health ruled there was lack of communication between Kogan and the grader driver and lack of management knowledge at the site.
So lets put a slightly different perspective on Nathan Newman's analogy. If the Labor Department wanted to have the same impact on Wal-Mart that Eugene's finest had on me, the fine would have been somewhere in the neighborhood of $650 million rather than $11 million.

So what's the message here? If you're a large corporation, make sure you target your political contributions well and hire expensive lawyers.

If you're a worker who's going to die on the job, make sure you take a bunch of fish with you.