It is perfectly all right for private environmental organizations to freeze out the government in fashioning penalties for polluters, the U.S. Court of Appeals in San Francisco ruled Aug. 1, to the dismay of the Bush administration.
The appellate judges told a trial judge that he was wrong in refusing to accept a consent decree in Sierra Club v. Electronic Controls Design, Inc.
The Clean Water Act allows citizen groups to bring suits to enforce its provisions, and that's just what Sierra Club did, accusing Electronic Controls Design of fouling Oregon waters by dumping wastes not allowed by the company's discharge permit.
Those charges were never proved because Electronic Controls Design promised to abide by the permit. It also agreed to pay the Sierra Club $5,000 toward the costs of bringing the case and to give a coalition of conservation groups an additional $45,000 to carry on their battles for clean water.
With one more promise -- that the company would kick in even more to the conservation groups if it violated its discharge permit in the future -- the Sierra Club accepted the deal, and moved to drop the litigation.
The government complained. Those payments really are nothing more than the civil penalties that can be levied under the Clean Water Act, the government argued, and the money should therefore go to the Treasury, not to private organizations.
The trial judge agreed, and refused to enter the appropriate orders to end the case. The appellate judges acknowledged that the payments do have some of the characteristics of the kind of fines that must go to the Treasury.
But Chief Judge Albert T. Goodwin emphasized the differences: There has been no finding that the law was broken, and the terms were arrived at through two-party bargaining rather than being imposed by fiat.
The opinion says that as a general matter, a trial court judge should always accept a consent settlement, unless it seems unfair, unreasonable, or itself a violation of public policy.
The Sierra Club deal is none of those: Even the trial judge who refused to accept the settlement admitted that if the designated groups get the payments they "will apply the money in ways that will help further the goals of the act." There's no reason the money has to go to the government, Goodwin said.
The opinion did not note another aspect of the settlement that might be persuasive to the company involved: Civil penalties are not tax-deductible, while contributions to nonprofit environmental organizations may well be.
In other cases, courts ruled that:
Commercial buyers cannot bring tort suits for property damage caused by defective products. Although the Minnesota Supreme Court said that commercial buyers could still bring product liability suits for personal injuries, the justices ruled that claims for property damages had to be treated like contract actions, waged under the Uniform Commercial Code.
Their reasoning: unlike ordinary consumers, business buyers have enough clout to bargain for whatever warranties they want in the sales contract itself.
(Hapka v. Paquin Farms, Aug. 3) It is legally impossible for two subsidiaries of the same corporate parent to violate the antitrust laws by conspiring with each other. In 1983, the U.S. Supreme Court said antitrust prosecutors cannot build a case on an alleged conspiracy between a parent and one of its subsidiaries, even though they are separate corporate entities.
Now the U.S. Court of Appeals in Richmond has extended that reasoning to dealings between subsidiaries. There's no way that curbs on one company promising to deal exclusively with another can be applied to members of the same corporate family, the ruling says.
(Advanced Health-Care v. Radford Community, Aug. 7) You don't have to have title to a piece of real estate in order to own it. That interpretation proved to be a big boon to the operator of a produce stand, who also lived on the property he leased for his business.
At the end of his six-year lease, the man contracted to buy the property for $66,000 and paid more than $10,000 in earnest money. But the owner refused to go through with the sale, and eventually paid the lessee $200,000 to call off the deal.
The Internal Revenue Service called the $200,000 taxable income, but the U.S. District Court in Alexandria said it could be excluded from income as the sale of a residence.
Legally, the buyer owned the land as soon as the sales contract was signed, Judge Claude M. Hilton ruled, even though the buyer and seller had never proceeded to settlement.
(Poague v. U.S., Aug. 3)
Daniel B. Moskowitz is a Washington editor for Business Week newsletters.