United States of America v. Kohler Co.

Background

The United States, acting through the Environmental Protection Agency, and the People of the State of California, acting through the California Air Resources Board, sued Kohler Co. The complaint alleged violations of provisions of the federal Clean Air Act, federal regulations governing emissions and engines, the California Health and Safety Code, and California regulations.

The plaintiffs lodged two proposed consent decrees with the court. One was between the federal agency, the California agency, and Kohler; the other was between the California agency and Kohler. Together, the decrees resolved all claims alleged in the complaint. The motions to enter the decrees were unopposed.

Terms of the Consent Decrees

The federal consent decree requires Kohler to forfeit 3,062,090 kilograms of Environmental Protection Agency hydrocarbon-plus-nitrogen-oxides credits and 271,834.720 kilograms of California Air Resources Board hydrocarbon-plus-nitrogen-oxides credits. It also requires Kohler to establish an independent environmental regulatory compliance team, provide annual compliance training for engine-division employees, maintain an employee code of conduct and ethics hotline, hold semiannual compliance meetings, conduct annual audits, implement an emissions-testing validation plan, and submit compliance reports.

The federal decree imposes a $20,000,000 civil penalty, divided 80 percent to the United States and 20 percent to California. The state consent decree requires Kohler to pay California a $200,000 civil penalty and undertake a mitigation project providing zero-emission, solar-powered generators to low-income residents in locations subject to public-safety power shutoffs. The project must cost at least $1,800,000.

Court’s Analysis

The court explained that it may approve a proposed consent decree when the decree is fundamentally fair, adequate, reasonable, and consistent with applicable law. Courts also consider the public policy favoring settlements, particularly when a government agency responsible for protecting the public interest helped develop the settlement. The court said it generally must avoid second-guessing the Executive Branch.

The court reviewed both procedural fairness and substantive fairness. Procedural fairness concerns whether the negotiation process was candid, open, and balanced. The court noted that all parties were represented by counsel and that Kohler did not object to the decrees. Substantive fairness means that a party should bear the cost of harm for which it is legally responsible. The plaintiffs argued that the decrees addressed past violations through civil penalties, prevented future violations through corporate compliance measures, and addressed excess air pollution through emissions-credit forfeitures. After considering the complaint’s allegations, the decree terms, and Kohler’s lack of opposition, the court found the decrees substantively fair.

Disposition

Judge Phyllis J. Hamilton granted the plaintiffs’ motion to enter a consent decree and the California Air Resources Board’s separate motion to enter consent decrees. The court ordered entry of the consent decrees lodged on January 30, 2020.