GENERAL ASSEMBLY OF NORTH CAROLINA

SESSION 1993

S	1 

SENATE BILL 1639*

Short Title:  Encourage Environmental Audits.	(Public)
─────────────────────────────────────── 
Sponsors: Senators Blackmon; and Carpenter.

─────────────────────────────────────── 
Referred to:  Environment and Natural Resources.

─────────────────────────────────────── 

June 1, 1994

A BILL TO BE ENTITLED
AN ACT TO ENCOURAGE THE PERFORMANCE OF ENVIRONMENTAL AUDITS AND SIMILAR ENVIRONMENTAL SELF-ASSESSMENTS BY PROVIDING LIMITED PROTECTION AGAINST THE MISUSE OF AUDITS BY CIRCUMSCRIBING THEIR DISCLOSURE, AND ALSO BY PROVIDING LIMITED PROTECTIONS FOR COMPANIES WHO ACT DILIGENTLY TO CORRECT PREVIOUSLY UNKNOWN DEFICIENCIES DISCOVERED DURING THE AUDITING OR ASSESSMENT PROCESS, AS RECOMMENDED BY THE ENVIRONMENTAL REVIEW COMMISSION.
Whereas, the General Assembly of North Carolina recognizes the importance of protecting the environment of this State, as well as the health and safety of its inhabitants and employees; and
Whereas, the ever-increasing complexity and pervasiveness of environmental regulation makes the performance of audits increasingly advantageous and advisable for businesses and municipalities in North Carolina; and
Whereas, the threat of enforcement, both civil and criminal, for environmental violations makes performing audits both potentially beneficial, but also potentially harmful if the contents are inappropriately disclosed or otherwise misused; and
Whereas, various governmental agencies and other entities, including the United States Environmental Protection Agency, have adopted policies having varying degrees of formality which are designed to encourage audits; and
Whereas, confidentiality of documents is largely a matter of State law; Now, therefore,
The General Assembly of North Carolina enacts:
Section 1.  Chapter 8C of the General Statutes is amended by adding a new section to read:
"§ 8C-2.  Privilege for environmental audits.
(a)	Purpose.  In order to encourage owners and operators of facilities and persons conducting activities regulated under those portions of the General Statutes listed in subsection (c) of this section, or conducting activities regulated under federal, regional, or local counterparts or extensions of those statutes, to conduct voluntary internal environmental audits of their compliance programs and management systems and to assess and improve compliance with statutes, an environmental audit privilege is recognized to protect the confidentiality of communications relating to voluntary internal environmental audits.
(b)	Definitions.  As used in this section:
(1)	'Environmental audit' means a voluntary, comprehensive evaluation of one or more facilities or an activity at one or more facilities regulated under those portions of the General Statutes listed in subsection (c) of this section, or the federal, regional, or local counterpart or extension of those statutes, or of management systems related to the facility or activity, that is designed to identify and prevent noncompliance and to improve compliance with environmental laws, and shall include all self-assessments by whatever name known, including all environmental audits or assessments performed pursuant to standards adopted by the American Society for Testing and Materials, and regardless of whether the assessment is conducted by the owner or operator, by the owner's or operator's employees, or by independent contractors.
(2)	'Environmental audit report' means all documents produced in the course of performing the environmental audit, including, without limitation:
a.	An audit report prepared by the auditor, which may include the scope of the audit, the information gained in the audit, conclusions, recommendations, exhibits, and appendices.
b.	Memoranda and documents analyzing any portion of an audit report or issues relating to the implementation of an audit report.
c.	An implementation plan that addresses correcting past noncompliance, improving current compliance, or preventing future noncompliance.
d.	All supporting information collected or developed for the primary purpose and in the course of an environmental audit, including all field notes and reports of observations, findings, opinions, suggestions, conclusions, drafts, information, maps, charts, graphs, and surveys.
(c)	Scope.  This act encourages the performance of environmental audits by creating a 'disclosure' privilege for environmental audit reports that would prevent the use of the reports as evidence in civil, criminal, or administrative proceedings provided that the noncompliance discovered during the course of the audit was not known to the owner or operator of the facility prior to the initiation of the audit.  This section applies to activities regulated under the following portions of the General Statutes and to activities regulated under federal, regional, or local counterparts or extensions of these statutes:
(1)	Article 7 of Chapter 74.
(2)	Chapter 104E.
(3)	Chapter 104G.
(4)	Article 25 of Chapter 113.
(5)	Articles 1, 4, and 7 of Chapter 113A.
(6)	Article 9 of Chapter 130A.
(7)	Chapter 130B.
(8)	Articles 21, 21A, and 21B of Chapter 143.
(d)	Privilege.  An environmental audit report shall be privileged and shall not be admissible as evidence in any legal action in any civil, criminal, or administrative proceeding, except as provided in subsection (e) of this section.  This privilege shall apply to all legal actions or administrative proceedings, whether civil or criminal, that commence after the effective date of this act.
(e)	Disclosure Under Limited Circumstances.
(1)	The privilege described in subsection (d) of this section does not apply to the extent that it is waived expressly by the owner or operator of a facility that caused the environmental audit report to be prepared.  However, the disclosure by the owner or operator of information in an environmental audit report to enforcement agencies shall not constitute a waiver.  Disclosed information shall be kept confidential by the enforcement agencies and may not be used by them in any investigation or in any proceeding against the defendant unless the information is found by a court of record to be subject to disclosure under subdivision (2) or (3) of this subsection.
(2)	In a civil or administrative proceeding, the court of record, after in camera review consistent with Chapter 1A of the General Statutes, shall require disclosure of material for which the privilege described in subsection (d) of this section is asserted only if the court determines that:
a.	The privilege is asserted for a fraudulent purpose;
b.	The material is not subject to the privilege; or
c.	The material shows evidence of substantial noncompliance with any provision of law to which this section applies for which the party has failed to undertake appropriate efforts to achieve substantial compliance with reasonable diligence.
(3)	In a criminal proceeding, a court of record, after in camera review as described in subsection (f) of this section shall require disclosure of material for which the privilege described in subsection (d) of this section is asserted, if the court determines that:
a.	The privilege is asserted for a fraudulent purpose;
b.	The material is not subject to the privilege;
c.	The material shows evidence of substantial noncompliance with any provision of law to which this section applies for which the party has failed to undertake appropriate efforts to achieve substantial compliance with reasonable diligence; or
d.	The material contains evidence relevant to a criminal offense under any provision of law to which this section applies, a district attorney or the Attorney General has a compelling need for the information, the information is not otherwise available and the district attorney or Attorney General is unable to obtain the substantial equivalent of the information by any means without incurring unreasonable cost and delay.
(4)	A party asserting the environmental audit privilege under subsection (d) of this section has the burden of proving the privilege, including, if there is evidence of noncompliance with any provision of law to which this section applies, proof that appropriate efforts to achieve compliance were pursued with reasonable diligence.  A party seeking disclosure under subdivision (2)a. or (3)a. of this subsection has the burden of proving that the privilege is asserted for a fraudulent purpose.  A district attorney or the Attorney General seeking disclosure under subdivision (3)d. of this subsection has the burden of proving the conditions for disclosure set forth in subdivision (3)d. of this subsection.
(f)	In Camera Review in Criminal Proceeding.
(1)	If a district attorney or the Attorney General has probable cause to believe a criminal offense has been committed under any provision of law to which this section applies based upon information obtained from a source independent of an environmental audit report the district attorney or Attorney General may obtain an environmental audit report for which a privilege is asserted under subsection (d) of this section pursuant to search warrant, criminal subpoena, or discovery as allowed by Chapter 15A of the General Statutes.  The district attorney or Attorney General shall immediately place the report under seal and shall not review or disclose its contents.
(2)	Within 30 days of the date on which the district attorney or Attorney General obtains an environmental audit report, the owner or operator who prepared or caused to be prepared the report may file with the appropriate court a petition requesting an in camera hearing on whether the environmental audit report or portions thereof are privileged under this act or subject to disclosure.  Failure by the owner or operator to file a petition shall waive the privilege.
(3)	Upon filing of such petition, the court shall issue an order scheduling an in camera hearing, within 45 days of the filing of the petition, to determine whether the environmental audit report or portions thereof are privileged under this subsection or subject to disclosure.  The order shall allow the district attorney or Attorney General to remove the seal from the report, review the report, and place appropriate limitations on distribution and review of the report to protect against unnecessary disclosure.  The district attorney or Attorney General may consult with enforcement agencies regarding the contents of the report as necessary to prepare for the in camera hearing.  However, the information used in preparation for the in camera hearing shall not be used in any investigation or in any proceeding against the defendant, and shall otherwise be kept confidential, unless and until such information is found by the court to be subject to disclosure.
(g)	Entry of Order by Parties.  The parties may at any time stipulate to entry of an order directing that specific information contained in an environmental audit report is or is not subject to the privilege provided under subsection (d) of this section.
(h)	Limited Disclosure.  Upon making a determination under subdivision (2) or (3) of subsection (e) of this section, the court may compel the disclosure only of those portions of an environmental audit report relevant to issues in dispute in the proceeding.
(i)	Privilege Not Applicable.  The privilege described in subsection (d) of this section shall not extend to:
(1)	Documents, communications, data, reports, or other information required to be collected, developed, maintained, reported, or otherwise made available to a regulatory agency pursuant to any provision of law to which this section applies;
(2)	Information obtained by observation, sampling, or monitoring by any regulatory agency; or
(3)	Information obtained from a source independent of the environmental audit.
(j)	Other Privileges Intact.  Nothing in this act shall limit, waive, or abrogate the scope or nature of any statutory or common law privilege, including the work- product doctrine, the attorney-client privilege, and the self-evaluation privilege.
(k)	Protection for Parties Who Implement Results of Audit.  For any violation or noncompliance shown in the audit that was not known to the owner or operator of the facility prior to the initiation of the audit, the owner or operator:
(1)	May not be prosecuted criminally or penalized civilly or administratively if the party immediately prepares and submits:
a.	A request for a special order by consent under G.S. 143-215.2 or G.S. 143-215.110; or
b.	An application for any permit necessary to conduct the activity that gives rise to the violation or noncompliance.
(2)	May continue to operate or otherwise maintain the status quo of the action discovered by the audit although otherwise contrary to statute, rule, or permit (but for this provision) during the continuation of any consent order and pending action on all permit applications and the expiration of all times for appeal of those actions."
Sec. 2.  This act is effective upon ratification.