The auto industry is witnessing a fundamental shift regarding the federal government’s legal theory of criminal liability, specifically as it relates to the Clean Air Act. The theory appeared in two cases last year. Neither was fully litigated—meaning the Environmental Protection Agency hasn’t had to defend its arguments—but they still provide important information on the future of enforcement.

Important Cases to Study

In United States v. Rexer, the government brought criminal charges against employees of Rockwater Northeast LLC, DJ Paulhamus Trucking, and Sweitzer’s Garage LLC. Rockwater transported wastewater for hydraulic fracturing operations. Paulhamus provided hauling services to Rockwater, and Sweitzer’s Garage offered maintenance and inspection services.

The Department of Justice alleged that Rockwater removed a portion of 30 heavy-duty trucks’ exhaust systems that contained emissions control devices and replaced them with straight pipe or hollowed out selective catalytic reduction devices or diesel particulate filters in the exhaust pipes. The onboard diagnostic devices (OBDs) were likewise disabled, preventing the vehicles from signaling or reacting to the malfunction.

The DOJ alleged that Rockwater purchased the “defeat devices” used for these activities from Paulhamus Trucking and Sweitzer’s Garage, and Sweitzer’s Garage then issued false inspection certificates. The department also alleged that these activities constituted “tampering” within the meaning of Section 113(c)(2)(C) and brought charges for conspiracy to defraud the U.S. under 18 U.S.C. § 371 and Section 113. The defendants, which included five individuals, pleaded guilty to conspiracy.

In United States v. OE Construction, an employee at OE Construction Corp. in Colorado purchased tuning kits from J-Ball Electronics Inc., which he used on OE’s trucks to remove or alter the diesel oxidation catalyst, the diesel particulate filter, selective catalytic reduction device, and the exhaust gas recirculation device, and to modify the OBD to allow the trucks to operate without emissions control equipment. J-Ball manufactured the kits and ran software that could reprogram the trucks’ systems. The company assured the EPA that the issue had arisen for only four vehicles and failed to disclose the modifications on two additional vehicles with the intent to avoid enforcement. The Justice Department charged OE under Section 113(c)(2)(C) and under 18 U.S.C. § 3 as an accessory after the fact.

Focusing scarce prosecutorial resources on just 36 trucks at issue in OE Construction and Rexner makes little sense—unless the federal government intended to send a message about the potential criminal liability for knowing OBD violations.

It is reasonable to expect more cases that push this theory, particularly in the aftermarket sector, but it would be a mistake to assume that the EPA’s interpretation won’t have a wider reach. Nothing on the face of Section 113(c)(2)(C) prevents the EPA from applying its new theory to original engine manufacturers, Tier 1 suppliers, or other “persons” who knowingly falsify, tamper with, render inaccurate, or fail to install OBDs.

However, one could reasonably question on policy ground whether it is appropriate to break new ground in environmental criminal enforcement, particularly on a novel interpretation of Section 113(c)(2)(C), a long-standing provision of the Clean Air Act.

Title II of the act, which regulates vehicle and engine emissions, contains no criminal liability provisions. It seems odd that Congress would deny the EPA direct criminal enforcement authority over vehicle emissions and engines in Title II, while indirectly creating liability for the monitors of those emissions. Apart from concerns about the interpretative strength of the EPA’s position, criminal enforcement of a novel statutory interpretation raises due process concerns.

The “rule of lenity” provides that “ambiguity concerning the ambit of criminal statutes should be resolved in favor of lenity” to ensure that such statues provide fair warning concerning conduct rendered illegal. Here, because Title II is silent on criminal liability, it would appear to raise questions about whether the regulated community has fair warning of the EPA’s new interpretation of Section 113(c)(2)(C).

Mitigating Related Risks

These cases showcase the EPA’s willingness to turn allegations of knowing onboard diagnostic device violations into criminal charges. Notwithstanding the small number of vehicles involved, and the EPA’s lack of OBD regulation, the federal pursuit of these cases signals an attempt to create policy through enforcement and a new legal theory that is gaining momentum.

The EPA typically opens criminal investigations based on two factors—significant environmental harm and culpable conduct. The agency is more likely to find significant environmental harm where even a small amount of illegal conduct appears to represent a trend. It also is more likely to find culpable conduct where there is a history of repeated violations from the targeted business.

Given these factors, companies can take a number of actions to avoid unjustified attention from the EPA’s criminal investigation arm. A robust internal compliance program can be critical in avoiding issues and program elements could include one or more of the following:

  • self-audits or internal reviews to regularly assess technical assumptions and OBD performance;
  • internal policies that encourage employees to report misconduct and police for illegitimate uses of products; and
  • internal policies that prohibit employees from offering assistance that may enable customers to use its products for illegitimate purposes.

Second, best practices for supplier and customer relationships might include one or more of the following:

  • requiring audits or demonstrations of quality assurance/quality control from suppliers relevant to the OBD;
  • commercial agreements to follow regulatory requirements;
  • indemnification for failure to follow regulatory requirements or good industry practice; and
  • ensuring that marketing materials don’t contain any information that could be read to suggest unrealistic or “too good to be true” performance.

Balancing risk awareness with a pragmatic response to the EPA’s new approach is a guiding principle for companies involved in developing and installing OEM-related equipment.

Finally, because the EPA is entering new regulatory territory, educating the agency on a vehicle’s onboard diagnostic device technology can serve as another tool in mitigating risks in this area.

(In Part 1 of this series, which ran March 27, we examined the legal history and what’s behind these changes.)

This column does not necessarily reflect the opinion of The Bureau of National Affairs Inc. or its owners.

Justin Savage is a partner in Sidley’s Washington D.C., office, focusing on high-stakes environmental litigation and counseling including government enforcement actions, internal investigations, and rule-making challenges.

Karen Popp is a partner and global co-leader of Sidley’s White Collar and Compliance group. She focuses on high-stakes matters such as global internal investigations, criminal, civil and regulatory enforcement matters, congressional investigations, state attorney general actions, compliance, and litigation. She previously served as associate White House counsel to President Clinton, an attorney in the Office of Legal Counsel at the Department of Justice, and an assistant U.S. Attorney in New York City.

Susan Harris is a counsel in Sidley’s Chicago office, where she advises on a broad range of regulatory matters and defends companies in civil and administrative enforcement actions under the Clean Air Act, environmental reporting, water, and pesticides programs.

Samina Bharmal is an associate in Sidley’s Washington, D.C,. office, where she focuses on guiding clients through internal investigations and judicial challenges to agency rule-makings, with an emphasis on federal environmental law.

Aaron Flyer is an associate in Sidley’s Washington, D.C., office, where his practice focuses on advising automotive and energy clients on a range of environmental matters including enforcement actions, regulatory compliance, rule-making, federal litigation, and asset acquisitions.

This article has been prepared for informational purposes only and does not constitute legal advice. This information is not intended to create, and the receipt of it does not constitute, a lawyer-client relationship. Readers should not act upon this without seeking advice from professional advisers. The content therein does not reflect the views of the firm.