COMMITTEE SUBSTITUTE

FOR

H. B. 2154

(By Delegates Amores, Faircloth and Smirl)


(Originating in the Committee on the Judiciary)


[March 3, 1997]


A BILL to amend the code of West Virginia, one thousand nine hundred thirty-one, as amended, by adding thereto a new chapter, designated chapter twenty-two-d; and to amend and reenact section two, article five, chapter twenty-nine-a of said code, all relating to creating a privilege from admissibility of evidence in administrative, civil and criminal actions for self evaluations of facility compliance with environmental laws; providing definitions; creating a privilege for performing environmental audits and preparing environmental audit reports; providing waivers and exceptions to the privilege; limiting disclosure of audit report; requiring certain actions to maintain the privilege; establishing wavier of civil penalties in certain circumstances; establishing procedures and burden of proof necessary to overcome the privilege; establishing appeal procedures; limiting waiver of the privilege; maintaining existing privileges; requiring the director of environmental protection agency to study and propose rules on assessment of the audit privilege; providing protection of audit documents submitted to a governmental agency; and including the privilege within the state administrative procedures act.

Be it enacted by the Legislature of West Virginia:
That the code of West Virginia, one thousand nine hundred thirty- one, as amended, be amended by adding thereto a new chapter, designated chapter twenty-two-d; and that section two, article five, chapter twenty-nine-a of said code be amended and reenacted, all to read as follows:
CHAPTER 22D. ENVIRONMENTAL SELF AUDITS.

ARTICLE 1. ENVIRONMENTAL AUDITS PRIVILEGE.
§22D-1-1. Legislative intent.
The Legislature hereby finds and declares that protection of the environment and human health is enhanced by encouraging voluntary compliance with environmental laws and that the public and the environment will benefit from incentives to encourage businesses to identify conditions or processes which may constitute or lead to noncompliance with environmental laws and to remedy promptly such conditions or processes to enhance safety and prevent or eliminate noncompliance discovered as a result of an environmental audit; that self evaluation and voluntary compliance by businesses independent of governmental enforcement actions promote cleanup of existing pollution and prevent future pollution; that providing protection from forced disclosure of environmental self-evaluations for businesses who undertake timely remediations of discovered violations, combined with a waiver of certain civil penalties for timely self-reporting, will create incentives for businesses to aggressively evaluate activities which impact the environment to undertake any necessary remediation activities, thereby improving the quality of the state's environment.
§22D-1-2. Definitions.
Unless the context in which used clearly requires a different meaning, as used in the article:
(a) "Division" means the West Virginia division of environmental protection as established in chapter twenty-two of this code.
(b) "Environmental audit" means a voluntary, good faith and comprehensive evaluation of a facility or facilities or any part thereof, including specific activities, processes or management systems, or local counterparts or extensions thereof, or management systems related to a facility or activity, that is designed to identify and prevent incidents of noncompliance and to promote future compliance with environmental laws. An environmental audit may be conducted by the owner or operator of a facility, by the employees of the owner or operator, or by outside consultants or agents retained by the owner or operator for purposes of performing such an audit. The environmental audit may not be used to protect any material or information developed concurrently with or after an incident which causes harm or risk of harm.
(c) "Environmental audit report" means a set of documents prepared as a result of an environmental audit, including, but not limited to, sampling results, test results, field notes and records of observations, findings, suggestions, conclusions, drafts, memoranda, drawings, photographs, computer-generated or electronically recorded information, maps, charts, graphs, surveys, provided that the information is collected or developed in the course of conducting an environmental audit. An environmental audit report shall include, but is not limited to, the following: (1) Scope and date of the audit and the information gained in the audit together with exhibits and appendices, including conclusions and recommendations; (2) memoranda and documents analyzing part or all of the audit report and discussing implementation issues; and (3) an audit implementation plan that addresses correcting past noncompliance, improving current compliance and preventing future noncompliance, and provides a schedule of implementation of the recommendations. The environmental audit report includes any memorandum, information, communications or documents discussing part or all of other environmental audit or implementation of compliance plans. Each document contained in the report must be labeled "Environmental Audit Report: Privileged Document" to be designated as part of the environmental audit report. Information not related to prospective assessment of environmental compliance shall not be eligible to be included in the audit report.
(d) "Environmental law" means any federal, state or local statute, law, ordinance, rule or regulation or permit standard applicable to a facility or the operations of a facility designed to protect or enhance the land, air or water for the protection of human health, natural resources or the environment.
(e) "Facility" means any site, operation or activity that is subject to regulation under any environmental law or laws.
(f) "Pattern of negligent acts" means: (I) Two or more negligent acts occurring within a five-year time period, which cause harm or risk of harm to human health; or (ii) when negligence acts causes harm to the environment, a pattern is shown when three or more negligent acts occur within a five-year time period. For purposes of establishing a pattern of negligent acts, negligent acts occurring prior to the effective date of this Act, and acts that are not related by similar cause or similar type of harm shall not be considered. For the purposes of establishing a pattern of negligent acts, a violation of a environmental law does not constitute a per se negligent act. For any act to be considered in a pattern of negligent acts, the person asserting the allegation of a pattern of negligent acts must demonstrate in an in camera or confidential review, as provided in section four of this article, that the acts violated the standard of reasonable care of the person asserting the privilege, and the pattern of negligent acts proximately caused harm or risk of harm to human health, or harm to the environment.
§22D-1-3. Privilege created, inadmissibility as evidence in any
proceeding.

(a) In order to encourage owners and operators of facilities to conduct voluntary environmental self-evaluations of their operations to assess and improve compliance with statutory and regulatory requirements under environmental law, an environmental audit privilege is hereby created to protect the confidentiality of communications relating to any such environmental audit. Upon completion of the environmental audit report, the environmental audit report and any materials created in its development shall be privileged, and are not admissible as evidence in any civil, criminal or administrative proceeding, and shall be exempt from disclosure or discovery in connection with or in anticipation of any such proceeding, except as provided in section four of this article.
(b) If the privilege described in this section is applicable to an environmental audit, the owner or operator, the employees of the owner or operator, or outside consultants or agents who engage in the performance of an environmental audit may not be examined in any civil, criminal or administrative proceeding as to the content of the audit or any environmental audit report without notice to the owner or operator of the affected facility. Nothing contained herein shall prohibit an employee, consultant or agent of the owner or operator, in matters or duties unrelated to performance of the audit, from disclosure or being required to testify to any observations witnessed while on site.
§22D-1-4. Privilege requirements and applicability.
(a) The privilege is applicable if the owner or operator has met all the following requirements:
(1) In the process of conducting the audit, if the owner or operator discovers that the facility does not have a necessary permit as required by an environmental law, an application for the permit must be filed no later than sixty days after the date on which the owner or operator becomes aware of the need for the permit.
(2) For other violations of environmental laws identified in an environmental audit that do not require application for a permit, the following requirements must be met:
(A) A preliminary plan for achievement of compliance must be prepared within sixty days of completion of the environmental audit. This plan shall include identification of the elements and course of action necessary to be taken to bring the facility into compliance with environmental laws, and identification of any action that needs to be taken immediately to minimize any adverse effect of noncompliance.
(B) Within six months, a final plan must be completed which establishes a reasonable time frame for remediation, along with a specific engineering plan for all necessary acts required to bring the owner or operator into compliance with all state and federal laws. The final plan must include an assessment of each environmental law violation and goals and plans to prevent future noncompliance. Implementation of the measures and actions contained in the final plan shall occur within the time frames established in the plan.
(b) The environmental audit privilege established in section three of this article does not apply or may be revoked under any of the following conditions:
(1) The privilege is expressly waived by the owner or operator of the facility that is the subject of the environmental audit;
(2) The owner or operator of the facility that is the subject of the environmental audit seeks to introduce the environmental audit report, or portion thereof as evidence in any civil, criminal or administrative hearing;
(3) If the person claiming the privilege fails to prepare a preliminary plan or a final plan and complete remediation as required by subsection (a) of section four of this article.
(c) The privilege described in section three of this article also does not apply to any of the following types of information:
(1) Information that is subject to reporting or availability requirements under existing permits or environmental laws;
(2) Information obtained by a regulatory agency through its own observation, sampling or monitoring, or from any source independent of the environmental audit report; or
(3) Information obtained from a source independent of the
environmental audit.
§22D-1-5. Limitation on civil penalties.
If an owner or operator of a facility regulated under this article complies with all the requirements of this article, the division shall not seek civil penalties for any self reported violation reported in a permit application or otherwise reported, which is discovered as a result of an environmental audit. This waiver of civil penalties shall not apply if the division has assumed primacy over a federally delegated environmental law and this waiver of penalty authority would result in a state program being less stringent than the federal program or the waiver would violate any federal regulation required to maintain state primacy. If a federally delegated program requires the imposition of a penalty for a violation, the voluntary disclosure of the violation shall be, to the extent allowed under federal law or regulation, considered a mitigating factor in determining the penalty amount.
§22D-1-6. Burden of proof.
A party seeking to prevent disclosure of any information in an environmental audit report has the burden of going forward in camera to establish that the environmental audit report was completed and there has been the requisite implementation of the remediation measures and actions contained in the final plan within the time frames established in the plan. Upon a prima facie showing of entitlement to the privilege, the party seeking disclosure of that information has the burden of proving the existence of conditions making the privilege under section three of this article inapplicable. The court or administrative body shall find by clear and convincing evidence that a violation of section four of this article has occurred, before information in the audit report may be disclosed.
§22D-1-7. Disclosure of audit materials.
If any of the information contained in an environmental audit report or obtained during the course of an environmental audit is subject to disclosure under this article, only those portions of the environmental audit report relevant to the applicable proceedings and subject to section four of this article shall be disclosed. Provided, That when the privilege has been asserted for any fraudulent purpose, all portions of the audit shall be subject to disclosure.
§22D-1-8. Procedure for disclosure of audit materials; right to appeal.
(a) Within one hundred eighty days of the filing of a responsive pleading which affirmatively pleads an environmental audit privilege, the party may file an appropriate pleading or motion to determine the applicability of the environmental audit privilege asserted if the party wishes to challenge the audit privilege. The environmental audit privilege shall be revoked under the following conditions:
(1) After an in camera or confidential review consistent with all applicable rules of a court or administrative body, and upon a finding by a court or administrative body that:
(A) The privilege is asserted for a fraudulent purpose, including any attempt to use an audit report to conceal violations which the owner or operator knew or reasonably should have known without initiating the audit;
(B) The material is not subject to the privilege; or
(C) Even if subject to the privilege, the material or other evidence demonstrates that prior to the audit, the owner or operator has through either a pattern of negligent acts, or by any act of gross negligence, or any intentional act, violated an environmental law, resulting in actual harm to human health or the environment. Actual harm must be demonstrated by bona fide medical, environmental, or financial evidence.
(2) In a criminal proceeding, a court of record, after an in camera review, may require disclosure of material for which the privilege is asserted, upon the finding of the court that the material contains evidence relevant to commission of an offense, and the government has substantial and compelling need for the information, and the information cannot be obtained from other independent sources. Any audit information disclosed pursuant to this paragraph is admissible in any subsequent civil or administrative proceeding.
(b) In a civil proceeding, a court of record after an in camera review, may require disclosure of material for which the privilege is asserted, upon the finding of the court that the material contains relevant evidence of negligence and the party seeking disclosure demonstrates a good faith effort to obtain the information through other manners or sources, and further demonstrates a substantial and compelling need for the information and that the information cannot be obtained from other independent sources.
(c) Any party aggrieved by the decision of the court or tribunal pursuant to subsection (a) shall have the right to appeal. Such appeal shall be filed within thirty days of issuance of the ruling. An appeal of an administrative ruling shall operate as an automatic stay of further proceedings until the appeal shall be determined. An appeal of a circuit court ruling may be subject to a stay of proceedings pursuant to rule six of the rules of appellate procedure of the supreme court of appeals. The failure to file an appeal of an administrative or circuit court ruling within thirty days of the date of the issuance of the ruling shall constitute a waiver of the right to appeal the ruling issued under this section and the provisions of the order shall be final.
§22D-1-9. Existing privileges retained.
Nothing in this article shall limit, waive or abrogate the scope or nature of any other statutory or common law privileges, including, but not limited to, the work product doctrine and the attorney-client privilege.
§22D-1-10. Report to the Legislature; confidentiality; agency rule-making authority.
The director of the division of environmental protection shall conduct an assessment of the necessity and benefits of the environmental audit privilage and file a report of the assessment with the joint committee of government and finance of the legislature by the first day of January, two thousand. Any facility which conducts an environmental audit may provide data to the director to facilitate the completion of the report pursuant to the rules promulgated herein.
The director shall propose rules for legislative approval by the thirty-first day of July, nineteen hundred ninety-eight, in accordance with the provisions of article three, chapter twenty-nine-a of this code, establishing the process for collecting and analizing any information collected from facilities by the division relating to the environmental audit privilege. The director shall take all necessary steps to protect the confidentiality of any information submitted to the division as set forth in section eleven of this article. Upon implementation of the rules, the director shall undertake the assessment provided herein.
§22D-1-11. Confidential submission does not waive privilege.
An owner or operator may submit an environmental audit report or a portion thereof, or a notice of completion of the environmental audit to a governmental agency as a confidential document without waiving a privilege to which the owner or operator would otherwise be entitled under this article, including protection from disclosure pursuant to chapter twenty-nine-b of this code.
CHAPTER 29A. STATE ADMINISTRATIVE PROCEDURES ACT.

ARTICLE 5. CONTESTED CASES.
§29A-5-2. Rules of evidence; taking notice of facts; correction
of transcript.

(a) In contested cases irrelevant, immaterial, or unduly repetitious evidence shall be excluded. The rules of evidence as applied in civil cases in the circuit courts of this state shall be followed. When necessary to ascertain facts not reasonably susceptible of proof under those rules, evidence not admissible thereunder may be admitted, except where precluded by statute, if it is of a type commonly relied upon by reasonably prudent men in the conduct of their affairs. Agencies shall be bound by the rules of privilege recognized by law, including those set forth in article one, chapter twenty-two-d of this code. Objections to evidentiary offers shall be noted in the record. Any party to any such hearing may vouch the record as to any excluded testimony or other evidence.
(b) All evidence, including papers, records, agency staff memoranda and documents in the possession of the agency, of which it desires to avail itself, shall be offered and made a part of the record in the case, and no other factual information or evidence shall be considered in the determination of the case. Documentary evidence may be received in the form of copies or excerpts or by incorporation by reference.
(c) Every party shall have the right of cross-examination of witnesses who testify, and shall have the right to submit rebuttal evidence.
(d) Agencies may take notice of judicially cognizable facts. All parties shall be notified either before or during hearing, or by reference in preliminary reports or otherwise, of the material so noticed, and they shall be afforded an opportunity to contest the facts so noticed.
(e) Upon motion in writing served by any party as notice may be served pursuant to section two, article seven of this chapter and therein assigning error or omission in any part of any transcript of the proceedings had and testimony taken at any such hearing, the agency shall settle all differences arising as to whether such transcript truly discloses what occurred at the hearing and shall direct that the transcript be corrected and revised in the respects designated by the agency, so as to make it conform to the whole truth.

Note: The purpose of this bill is to establish an environmental audit privilege for businesses which conduct self audits to assess environmental law compliance. As long as the privilege attaches to audit documents, the audit cannot be used in a legal proceeding as evidence against the business. Requirements and methods relating to obtaining and maintaining the privilege as well as means for overcoming the privilege are established.


Strike-throughs to current law indicate language that would be stricken from the present law, and underscoring indicates new language that would be added. All of Chapter 22D is new, therefore it contains no strike-throughs or underscoring.