Recognizing_and_Minimizing_Tort_and_Regulatory_Risk

Recognizing and Minimizing Tort and Regulatory Risk University of Phoenix May 31, 2010 Alumina has diversified interests in automotive components, bauxite mining, alumina refining and smelting (University of Phoenix, 2010). With a generally overall good compliance record for applicable environmental regulations, Alumina has found itself amid allegations of releasing contaminates into Lake Dira (University of Phoenix, 2010). Alumina must now create a strategic plan to mitigate fiscal and environmental damages, preserve their public image while abiding by all pertinent environmental statues (University of Phoenix, 2010). Key Facts Alumina operates in eight countries with 70% of its $4 billion revenue earned in the United States (University of Phoenix, 2010). Falling under the jurisdiction of the EPA’s region 6, Alumina was found to be in violation of environmental discharge norms during a routine EPA compliance evaluation inspection (University of Phoenix, 2010). This inspection revealed that the PAH emissions were above acceptable limits. Alumina responded with prompt compliance (University of Phoenix, 2010). Aside from this one incident, which occurred five years ago, Alumina has a record of good overall compliance (University of Phoenix, 2010). Local resident Kelly Bates alleges that Alumina has caused leukemia in her ten year old daughter through contaminating Lake Dira. She claims that her daughter’s disease coincides with the onset of Alumina’s EPA violation which occurred five years ago (University of Phoenix, 2010). Bates further seeks the release of the full environmental report of the five year old EPA violation through use of the Freedom of Information Act (FOIA). These allegations lead to Alumina seeking legal consult for the claims of negligence through on-going contamination of Lake Dira, violation of EPA statues, Freedom of Information Act exemptions, liability for personal injury and liability for pollutants in the lake and subsequently, the state’s drinking water. Alumina voluntarily requested and independent study which revealed that the PAH limit was below acceptable amounts. In addition to this study, an American scientific journal released a study indicating that increased traffic emitted more PAH than the levels of Alumina (University of Phoenix, 2010). Values & Key Stakeholders Alumina is a primary stakeholder in this dilemma. The continued financial success of the business, as well as their public image is being challenged. Kelly Bates is concerned about the welfare of her daughter, and could possibly be seeking a target in which to assign blame. The state of Erehwon shares an interest in that if Lake Dira is indeed contaminated, then concern arises over the quality and safety of drinking water. The wildlife in and around Lake Dira is also of concern, as the contaminants may effect their food supply, food chain and health. The EPA is the final shareholder as their oversight may be challenged. While the stakeholders share the common goal of protecting the environment, competing interests arise between Alumina and Ms. Bates. Ms. Bates seeks monetary compensation for her daughter’s illness, Alumina doubts its liability. While pediatric leukemia is unfortunate, the question arises as to if Alumina’s actions is the true cause. Alternative Solution Based on the results of the independent study and the report of the American scientific journal, Bates’ allegations should be challenged. Because a jury may respond favorably to the mother of a child with cancer, despite evidence to the contrary, the initial step should be to seek mediation with Bates to seek a cost-effective, quiet and private resolution. The following information lends support to Alumina’s defense. A study of residents living along the Kemijoki River in Finland was conducted between 1981 and 2000 to study the incidences of cancer from the river polluted with polychlorinated dibenzo-p-dioxins (Verkasalo, 2004). The study revealed only a slightly elevated risk of skin cancer from the high levels of pollutants (Verkasalo, 2004). Skin cancer in the form of basal cell carcinoma was the most prevalent with farmers being the highest risk group (Verkasalo, 2004). Alumina also followed preferred protocol by the EPA when the company ordered an independent study to measure the current levels of PAH discharged from their facility. The EPA has long urged companies to take a proactive stance through voluntarily setting guidelines for themselves, and view the standards as “floors, not ceilings” (Bergeson, 2004, para. 1). Bates and the local newspaper filed for a release of information under FOIA. This act, which only gained true power in 1974, was designed to allow citizens to request information from government agencies (Feinberg, 1986). Although the FOIA has been in place since 1966, it is still called a “dynamic statute” (Feinberg, 1986, para. 1) gaining visibility once again through concerns of governmental transparency in fiscal reporting (Fleschert, 2009). Citing protection under Exemption 4, which exists to protect confidential information in the form of commercial or financial information, or trade secrets from disclosure (Fleschert, 2009), Alumina should only release the information related to the actual adjudication of its EPA violation. This provides the necessary compliance information to the public, but mitigates the risk of Alumina losing market share. In response to Bates’ threats of a personal injury suit, Alumina should look at studies of “toxic torts” (Hayes, 2009, para. 3). A toxic tort is the phrase coined to refer to instances when a plaintiff claims that an illness occurred due to exposure to a toxic substance (Hayes, 2009). In most of these instances, the links between the toxin and the illness are uncertain, complicated, and not straight-forward. This requires the use of expert witnesses, which can dramatically increase the cost of litigation. It is for this reason, mediation should be attempted first. Often, according to Hayes, the illnesses are wide-spread and plaintiffs will band together to file a class action lawsuit to reduce their costs (2009). Even with the press coverage, Bates remained alone in her allegations. By offering to implement more stringent regulations upon themselves, Alumina has the opportunity to become a leader in the industry and an advocate for the environment. The 2010 oil spill in the Gulf of Mexico, has BP going through a similar trial of public perception. According to BP Chief Executive Officer, Tony Hayward, “[d]eepwater drilling will be transformed by this event. If we can win the hearts and minds of the communities that are impacted, then we have the potential to enhance our reputation rather than have it damaged” (Helman, 2010, para. 2). Negligence is commonly defined as “the omission to do something which a reasonable man would do” (Cheeseman, 2010). In order to Alumina to be found guilty of negligence in regard to Bates’ daughter, Bates would need to prove that Alumina owed her and her daughter a duty of care (the duty to not cause any unreasonable harm, this duty of care was not executed, Bates was injured, the actions of Alumina caused the injury, and that the proximate cause of that injury was due to an act of negligence (Cheeseman, 2010). Based on the evidence revealed by the EPA adjudication proceedings and the independent testing, this will not be easily proven. This evidence clearly demonstrates the compliance with EPA regulations. Bates will also need to prove actual cause (Cheeseman, 2010). This means that a link between the actions of Alumina and the illness of Bates’ daughter must be proven. This evidence for Bates is simply lacking. In addition, if Alumina was found negligent in this case, then it could represent a failure of the EPA’s oversight program. The Government Accountability Office, in the 2009 statement of its director, Anu Mittal, has the expectation of the EPA’s 10 regional offices to “take a systematic and generally consistent approach to overseeing the state enforcement programs, and, in doing so, to follow EPA’s regulations, policies, and guidance” (para. 2). This report further indicates that through the Clean Water Act, there was an improvement in the EPA oversight in 2007. The EPA also identifies the most significant sources of pollutants were not manufacturing facilities, such as Alumina, but “municipal wastewater facilities, storm sewer systems, concentrated animal feeding operations and construction sites” (Hunter, 2009, para. 3). Alumina could also file a counter-suit against Bates for slander and libel. The statements Bates has made alleging Alumina caused the cancer in her daughter are not proven and appeared in print and the community (Cheeseman, 2010). Bates continues to file suit with these unsubstantiated claims, therefore risking the public image and commercial activities of Alumina. There is a strong possibility that Bates made these claims with actual malice, or the intent to harm Alumina’s reputation (Cheeseman, 2010). Extortion could also be of concern. Alumina acted too generously in regard to its settlement with Bates. While the monetary compensation may have been worth it to quiet Bates, it leaves the question open as to if Alumina was in fact admitting guilt or offering hush money. The confidentiality agreement signed by Bates does provide Alumina some protection from others seeking a payout. Perhaps a trust fund for the daughter’s education could have been negotiated along with a donation in her honor to cancer research. Sponsorship of annual free cancer screenings for local residents could improve the public image. Alumina should also take proactive measure to insure full compliance with EPA regulations and seek to perform above the minimum requirements for optimal safety and legal protection. Effective July 1, 2010, China will declare that tort liability will be the burden of environmental polluters (Collection of New Laws and Regulations for Environmental Protection, 2010). By reacting to this law by a peer of the United States, and implementing standard operating procedures to proactively prevent liability under China’s law, Alumina will be ahead of EPA regulations and those of competitors. The decisions made in response to Bates’ allegations did impact public opinion of the company. Competitors may have also been watching the news for Alumina’s response. Mediation provided the needed confidentiality of the settlement without the risk of negative media attention for Alumina. While the settlement offer to Bates may have been costly, the settlement, even when combined with the cost of mediation, was less of a risk and financial burden than a long trial. References (2010). Collection of New Laws and Regulations for Environmental Protection. China Chemical Reporter, 21(2), 12. Retrieved from Academic Search Complete database. Bergeson, L. (2004). WASHINGTON WATCH: Internal Guidelines and TSCA: The Implications of EPA's Against DuPont.Environmental Quality Management, 14(2), 77-83. doi:10.1002/tqem.20039 Cheeseman, H.R. (2010).Business law: Legal environment, online commerce, business ethics, and international issues (7th ed.). Upper Saddle River, NJ: Pearson Prentice Hall. Feinberg, L., & Relyea, H. (1986). Foreword. Public Administration Review, 46(6), 603. Retrieved from Business Source Complete database. Fleschert, M. (2009). Federal Reserve locks vault on bailout records. News Media & the Law, 33(4), 15-16. Retrieved from Academic Search Complete database. Hayes, P.. (2009). Exploring the Viability of Class Actions Arising from Environmental Toxic Torts: Overcoming Barriers to Certification. Journal of Environmental Law and Practice, 19(3), 189-224.  Retrieved May 31, 2010, from ABI/INFORM Global. (Document ID: 1864845491). Helman, C. (2010). Slick Performance. Forbes, 185(10), 28-30. Retrieved from Academic Search Complete database. Hunter, P. (2009). EPA To Step Up Clean-Water Enforcement. ENR: Engineering News- Record, 2632. Retrieved from Academic Search Complete databas Mittla, Anu (2009). Director & United States Government Accountability Office. (n.d.)The Clean Water Act After 37 Years. FDCH Congressional Testimony, Retrieved from MasterFILE Premier database. University of Phoenix. (2010). Business Regulation. Scenario. Retrieved May 21, 2010 from University of Phoenix. Verkasalo, P., Kokki, E., Pukkala, E., Vartiainen, T., Kiviranta, H., Penttinen, A., et al. (2004). Cancer Risk Near a Polluted River in Finland. Environmental Health Perspectives, 112(9), 1026-1031. Retrieved from GreenFILE database.