The first quarter of 2015 brought two significant settlements against retailers for alleged violations of California’s hazardous waste laws. The settlements are the latest in a string of similar California enforcement actions that have seen total penalties of over $150 million levied against retailers in the last five years involving waste products. Through settlement orders, California prosecutors continue to impose increasingly onerous obligations for employee training, hazardous waste determinations, mandatory third-party auditing, and other oversight of hazardous waste compliance programs that go above and beyond the regulatory requirements. This puts a premium on retailers to develop and maintain a robust hazardous waste compliance program that can withstand enforcement scrutiny. 

January 2015 Settlements

On January 6, 2015, several Southern California district attorneys announced that a discount retail chain, 99-Cents Only Stores, LLC, agreed to pay more than $2.36 million to resolve allegations that the company unlawfully disposed of hazardous wastes in trash bins at 251 of its stores and distribution centers in California. The trash bin contents were destined for local landfills that were not equipped to handle hazardous wastes. In addition to the monetary penalty, the retail chain agreed to be bound by a permanent injunction that requires it to implement enhanced compliance efforts related to hazardous waste management at all of its California stores. 

On January 5, 2015, a major grocery retail chain agreed to pay $9.87 million to resolve similar claims involving hazardous product and pharmaceutical wastes at over 500 of its California stores and distribution centers. Most of the wastes were returned, damaged, expired or spilled consumer products such as over-the-counter medication, aerosol products, batteries, home maintenance, cosmetic and personal care products, and other ignitable and corrosive materials. Consistent with existing law, the settlement specifically enjoins the company from disposing of any hazardous waste into dumpsters, drains, sinks, toilets, or any landfill or transfer station not authorized to receive hazardous waste. 

The settlement also prohibits waste products that are hazardous from being transported under the retailer’s standard reverse logistics process (e.g., transfers from the defendant’s retail facilities to defendant’s distribution centers and/or from retail or distribution centers to third parties such as the product manufacturer) except in cases where the transportation is handled by a permitted hazardous waste hauler and wastes are taken to permitted hazardous waste treatment, storage, and disposal facility. Other obligations reinforced by the settlement include registration of facilities, waste classification, storage and segregation, marking and inspecting containers, preparing and filing hazardous waste manifests, and submission of appropriate hazardous materials business plans.

Other Recent Settlements

The 2015 settlements follow a string of similar California hazardous waste enforcement actions against retailers in recent years. In these cases, the investigative agency (typically the Department of Toxic Substances Control (DTSC)), and the district attorney’s offices that led the prosecution each obtained a share of the penalties collected. The cases also feature one of DTSC’s favored investigative tactics, securing and analyzing the contents of trash dumpsters from companies under investigation. Other settlements include:

• An agreement by TJX Companies, Inc. (a holding company that operates several clothing and home goods retail chains) to pay $2.7 million to settle allegations that the company’s stores in California violated hazardous waste disposal rules (September 2014), brought after investigators inspected dumpsters at the stores throughout 2012 and 2013.;
• An $18.1 million settlement between a major home improvement retailer and a consortium of enforcement agencies led by the district attorneys of Alameda, San Joaquin and Solano counties (April 2014) in which the pleadings alleged that the stores improperly disposed of a range of products (including aerosols, paints, solvents, adhesives, mercury-containing lamps/light bulbs, and electronic waste) from its California stores;
• A $3.3 million settlement between a major grocery store chain and several district attorney’s offices and state agencies involving allegations of illegal disposal, transportation, storage, and management of hazardous waste (June 2014), including over-the-counter medications, aerosols, batteries, electronic waste, and pool chemicals; and
• A $12.3 million settlement by a national drug store chain to settle a civil suit alleging that the company improperly managed, transported, and disposed of hazardous waste at hundreds of California stores and distribution centers (September 2013), including pesticides, fertilizers, paints, aerosols, batteries, electronic waste, and mercury-containing lamps.

Implications for the Retail Sector

Enforcement against retail and distribution center operations does not appear to be slowing; if anything, investigators and prosecutors have found a model that works for them and they are likely to continue pursuing cases in this area.

Although not law, the terms of settlement agreements have a binding effect on parties to the agreement. Some provisions pushed by prosecutors as part of settlements can set a damaging precedent (both in terms of becoming the default provisions for other, future settlements and by making generalized statements related to fact-specific issues). In particular, the settlements statements about the point of generation of the hazardous wastes could be problematic for defendants’ future compliance efforts and will have the effect of foreclosing arguments the companies would have otherwise had regarding the point of generation absent those provisions. This is one reason why it is essential to have counsel that is experienced with the nuances of California and federal hazardous waste regulation when negotiating hazardous waste settlements.

The penalties paid in the current settlements are helping to fund the next rounds of enforcement. In some cases, the supplemental environmental projects funded by settlement dollars are specifically designed to provide environmental enforcement training to state or local agencies, or to test various retail wastes (such as surfactants, sunscreens, lotions and health care products) to determine whether these products, when wastes, qualify as hazardous under California’s aquatic toxicity tests.

Systems and training at the facility level are essential to maintaining compliance. Many of the violations in these cases stem from the failure to properly classify waste as hazardous, and retailers’ subsequent failure to manage these wastes under applicable requirements.