On December 6, 2012, the Ohio Supreme Court issued its decision in State ex rel. Ohio Atty. Gen. v. Shelly Holding Co., Slip Opinion No. 2012-Ohio-5700 (Dec. 6, 2012), which addressed the duration of a violation in the event of a failed “stack test” used to determine the compliance of an air emission unit.   While a relatively common place event, few courts have actually reached the question.  Thus, while an Ohio case, the Shelly decision offers practical insight for industries nationwide on how they can lessen the economic impact of such a violation.

Shelly operated several hot-mix asphalt plants that were permitted by Ohio EPA. Each permit established air emissions limits for the various pollutants, as well as key testing requirements for demonstrating compliance with the limits.  Shelly conducted testing that exceeded the allowable emission limits.  Eventually, the State sought enforcement that resulted in lengthy litigation, in part, over what the duration of violation should be for a non-compliant stack test.  Shelly argued a “normal operations” defense strategy, whereby Shelly acknowledged a violation on the day of the stack test, but also claimed that since the test was conducted at maximum capacity the testing did not reflect the normal operations of the source. As a result, Shelly reasoned the failed test constituted only a single day of violation for purposes of calculating a civil penalty.

Although the trial court agreed with Shelly, the Court of Appeals and Ohio Supreme Court both disagreed.  The high court reasoned that “it would be illogical to conclude that without some change in the conditions or circumstances that produced the failed stack test, continuous compliance with the permit terms had been achieved.”  The court concluded that where it is shown that a permit holder failed to pass the stack test, a prima facie showing is also made that the violation is likely to continue.  The burden of proof then shifts to the permit holder to show that either continuous compliance has been achieved, or that some change in conditions has occurred to cause the violation not to be continuing.

The court’s language explaining changed conditions is instructive and provides several suggestions for cutting off the duration of a violation. The court stated that Shelly could have mitigated its penalties by offering rebuttal evidence showing days of nonoperation or subsequent modifications to a facility.  The court offered that the evidence could include “evidence from continuous emission monitoring systems, expert testimony, and bypassing and control equipment malfunction … ”  The court cited potential evidence that could be utilized such as that “the operating conditions documented during the stack testing no longer existed, that mechanical failures were repaired, that raw materials and fuels were changed, or that Shelly scheduled retests.”

Companies that receive failed stack test results should consider the Shelly decision carefully.  Documenting any changes to operations and materials associated with a source following a stack test may prove to be beneficial if enforcement is later taken.  Although the regulatory agency may disagree whether, for instance, a change in fuels or equipment repair constitutes a change in condition, it may offer protection when reviewed in court.  Such action could mean the difference between paying for a single day of violation versus potentially staggering penalties for longer periods of non-compliance.