GENERAL ASSEMBLY OF NORTH CAROLINA

SESSION 1995

H	3 

HOUSE BILL 817
Committee Substitute Favorable 5/2/95
Third Edition Engrossed 5/10/95

Short Title:  Environmental Audits.	(Public)

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Sponsors:

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Referred to:  

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April 11, 1995

A BILL TO BE ENTITLED
AN ACT TO ENCOURAGE THE PERFORMANCE OF ENVIRONMENTAL AUDITS BY PROVIDING A LIMITED PRIVILEGE AGAINST THE DISCLOSURE OF AN ENVIRONMENTAL AUDIT REPORT AND TO GRANT IMMUNITY FROM CIVIL AND CRIMINAL PENALTIES TO A PERSON OR OTHER ENTITY THAT VOLUNTARILY DISCLOSES A VIOLATION OF AN ENVIRONMENTAL LAW.
Whereas, the  General Assembly recognizes the importance of protecting the environment of this State and the health and safety of its citizens; and
Whereas, the ever-increasing complexity and pervasiveness of environmental regulation makes the voluntary performance of environmental self-assessments, or environmental audits, increasingly advantageous and advisable for businesses, local governments, and other entities regulated by the environmental laws of North Carolina; and
Whereas, self-assessments by regulated entities provide for an effective and efficient method for increasing environmental compliance and for protecting the environment, public health, and natural resources of North Carolina without additional governmental spending; and
Whereas, there are serious disincentives to the performance of beneficial environmental audits by responsible members of the regulated community;  Now, therefore,
The General Assembly of North Carolina enacts:
Section 1.  Chapter 8 of the General Statutes is amended by adding a new section to read:
"§ 8-53.9.  Privilege for environmental audits.
(a)	Purpose. – For the purpose of encouraging the performance of environmental audits, a limited privilege is created to protect environmental audits.
(b)	Definitions. – As used in this section:
(1)	'Audit team' means those persons and entities who perform an environmental audit and prepare an environmental audit report.
(2)	'Environmental audit' means a confidential voluntary evaluation or self-assessment of one or more facilities, one or more activities at any of those facilities, or one or more management systems related to those facilities or activities for the purpose of identifying noncompliance with environmental laws, preventing noncompliance with environmental laws, improving compliance with environmental laws, identifying and encouraging waste minimization or pollution prevention, or reducing risks to human health or the environment, whether or not the audit is conducted by the owner or operator of the facility or activity, by employees or agents of the owner or operator, or by independent contractors.
(3)	'Environmental audit report' means any document generated in the course of performing an environmental audit and any document prepared in response to the environmental audit that addresses the correction of past noncompliance, the improvement of current compliance, or the prevention of future noncompliance, including both draft and final documents, and including each of the following:
a.	Any report prepared by any member of the audit team, including exhibits and appendices to the report.
b.	Any executive summary of the final report.
c.	Any document analyzing the final report.
d.	All work papers generated by members of the audit team in connection with the audit, including, without limitation, all working papers, field notes, and reports of observations, findings, opinions, suggestions, conclusions, drafts, information, maps, charts, graphs, and surveys.
e.	Written communication to or from any member of the audit team concerning the audit.
	'Environmental audit report' does not include any document, communication, data, report, or other communication:
a1.	Required to be collected, developed, maintained, reported, or otherwise made available to a governmental agency pursuant to any permit governing an audited activity.
b1.	Required to be collected, developed, maintained, reported, or otherwise made available to a governmental agency pursuant to any environmental law governing an audited activity.
c1.	Required to be collected, developed, maintained, reported, or otherwise made available to a governmental agency by order of any governmental agency or court.
d1.	Obtained by observation, sampling, or monitoring by any governmental agency.
e1.	Obtained from a source independent of the environmental audit.
f1.	Existing prior to the commencement of the environmental audit.
g1.	Prepared subsequent to the completion of, and independent of, the environmental audit.
h1.	Not otherwise privileged that is developed or maintained in the course of a regularly conducted business activity or regular practice other than an environmental audit.
(4)	'Environmental law' means all of the following portions of the General Statutes, any comparable federal, regional, or local laws or extensions of those statutes, and any rules, regulations, or interpretations that implement the following portions of the General Statutes or comparable federal, regional, or local laws:
a.	Article 7 of Chapter 74.
b.	Chapter 104E.
c.	Article 25 of Chapter 113.
d.	Articles 4 and 7 of Chapter 113A.
e.	Articles 9, 10, 11, and 19 of Chapter 130A.
f.	Articles 21, 21A, 21B, and 52 of Chapter 143.
(c)	Privilege. – An environmental audit report that complies with the requirements set forth in subsection (d) of this section is privileged against disclosure to any person.  An environmental audit report that complies with the requirements set forth in subsection (d) of this section is not admissible as evidence in any civil, criminal, or administrative proceeding except as provided in subsections (e) and (f) of this section.  No person shall be competent to testify in any civil, criminal, or administrative proceeding concerning an environmental audit report that is privileged under this section unless the privilege is waived or disclosure is ordered under subsection (e) or (f) of this section.  The privilege created by this section protects an environmental audit report and any oral communication concerning the environmental audit report to or from any person or entity who is a member of the audit team, but does not protect the underlying facts or activities that are the subject of the environmental audit report.
(d)	Environmental Audit Report Requirements. – In order to be privileged under subsection (c) of this section, an environmental audit report must: (i) be based on an environmental audit that is started and completed on dates certain and performed under a definite and determinate scope of work; (ii) be dated, identify the scope of the environmental audit described in the report, and identify all members of the audit team; and (iii) contain pages that are consecutively paginated and that are each labeled 'Environmental Audit Report: Privileged Document.'  An environmental audit report that does not meet these requirements is privileged under subsection (c) of this section if, in any civil, criminal, or administrative proceeding in which the  privilege is asserted, the court or the administrative law judge finds that the audit team made a good faith effort in the conduct of the environmental audit and in the preparation of the environmental audit report to comply with these requirements and to maintain the confidentiality of the environmental audit report.
(e)	Procedure for Seeking Disclosure in Civil or Administrative Proceedings. – When a party to a civil or an administrative proceeding seeks access to an environmental audit report or seeks to conduct discovery regarding that report, the provisions of this subsection apply.  Discovery may be had without judicial intervention as to the following: the fact that an environmental audit took place; the existence of any environmental audit report; the starting and ending dates of the environmental audit; the facility or facilities that were audited; and the identities of the members of the audit team and any other persons who have had access to the environmental audit report.  Where disclosure is sought in a civil or administrative proceeding of any other fact or aspect of an environmental audit or an environmental audit report and the privilege has not been waived, the court or the administrative law judge, after an in camera review in accordance with the provisions of Rule 26(c) of the Rules of Civil Procedure, shall require disclosure of material for which the privilege described in subsection (c) of this section is asserted, only if the court or administrative law judge determines that the:
(1)	Material is not subject to the privilege;
(2)	Privilege is asserted for a fraudulent purpose; or
(3)	Privilege is waived pursuant to subsection (g) of this section.
(f)	Procedure for Seeking Disclosure in Criminal Proceedings. – A district attorney or the Attorney General who, based upon information obtained from a source independent of an environmental audit report, has probable cause to believe a criminal offense has been committed under any environmental law,  may obtain an environmental audit report for which a privilege is asserted under subsection (c) of this section pursuant to a search warrant, criminal subpoena, or discovery in accordance with the provisions of Chapter 15A of the General Statutes.  Discovery may be had without judicial intervention as to the following: the fact that an environmental audit took place; the existence of any environmental audit report; the starting and ending dates of the environmental audit; the facility or facilities that were audited; and the identities of the members of the audit team and any other persons who have had access to the environmental audit report.  The provisions of subdivisions (1) through (4) of this subsection apply to discovery of any other fact and aspect of an environmental audit or an environmental audit report, unless the privilege has been waived:
(1)	The district attorney or Attorney General shall immediately place the report under seal and shall not review or disclose the contents of the report.
(2)	Within 30 days after the district attorney or Attorney General obtains an environmental audit report, the person who prepared the report or caused the report to be prepared may petition the court for an in camera hearing to determine whether the report or any portion thereof is privileged under this section.  If the person who prepared the report or caused the report to be prepared fails to petition the court for a determination within 30 days, the privilege is waived.
(3)	If a petition is filed under subdivision (2) of this subsection, the court shall order that an in camera hearing be held within 45 days of the date the petition is filed.  The order shall allow the district attorney or the Attorney General to remove the seal from the report in order to review the report and shall place appropriate limitations on distribution and review of the report to protect against unnecessary disclosure.  The district attorney or Attorney General may consult with appropriate governmental agencies regarding the contents of the report to the extent necessary to prepare for the in camera hearing.  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 the information is found by the court to be subject to disclosure under subdivision (4) of this subsection.
(4)	In a criminal proceeding, the court, after an in camera review, shall require disclosure of material for which the privilege under this section is asserted, if the court determines that the:
a.	Material is not subject to the privilege.
b.	Privilege is asserted for a fraudulent purpose.
c.	Privilege is waived pursuant to subsection (g) of this section.
d.	Material contains evidence relevant to commission of a criminal offense under an environmental law, the district attorney or Attorney General shows a compelling need for the information, the information is not otherwise available, and substantially equivalent information cannot be obtained by any other means without incurring unreasonable cost and delay.
(g)	Waiver. –
(1)	A person holding the privilege created by subsection (c) of this section waives the privilege by:
a.	Expressly waiving the privilege in writing.
b.	Signing a consent special order or settlement agreement binding on the person holding the privilege and expressly stating that the privilege is waived.
c.	Introducing into evidence in any civil, administrative, or criminal proceeding all or any portion of the environmental audit report.  Introduction of any portion of an environmental audit report into evidence waives the privilege as to that portion of the environmental audit report that was introduced into evidence.  In addition, the court may compel disclosure of all or any other portion of the environmental audit report if the court determines that disclosure is necessary to a proper administration of justice and that the disclosure is not prohibited by other statute or rule.
d.	Failing to make a report or disclosure of noncompliance required by an environmental law if the failure to make the report or disclosure of noncompliance is identified in the environmental audit.
e.	Failing to undertake appropriate efforts with reasonable diligence to correct any noncompliance identified in the environmental audit report.
f.	Releasing information in any environmental audit report in a manner that is inconsistent with an intent to protect the confidentiality of the information.  Release of any portion of an environmental audit report to any State agency waives the privilege as to that portion of the environmental audit report that was released.
(2)	The disclosure by the owner or operator of a facility of information in an environmental audit report to an employee, agent, representative of the owner or operator, lender, or prospective purchaser of the operation or facility shall not constitute a waiver of the privilege under this subsection so long as the owner or operator has entered into a written confidentiality agreement with the recipient of the information or has acted in a manner consistent with an intent to protect the confidentiality of the information.
(3)	In determining whether a party has waived any privilege under this subsection, the court or the administrative law judge shall be guided by the principles that govern the waiver of privileges under common law, except to the extent that common law doctrines are inconsistent with this subsection.
(h)	Protective Orders. – Any required disclosure of any environmental audit report, or any portion thereof, shall be under terms that will protect from disclosure all privileged information in the report.  The court, in its discretion, may issue a protective order, an order limiting copying or further dissemination of the report, an order redacting the report, or any other order necessary to protect the confidentiality of information in the report.
(i)	Stipulations. – The parties to a proceeding under subsections (e) and (f) of this section 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 this section.
(j)	Other Privileges Intact. – Nothing in this section shall limit, waive, or abrogate the scope or nature of any statutory or common law privilege.
(k)	Burdens of Persuasion and Proof. – The person asserting the privilege under this section has the burden of proving that the information is privileged.  If the person asserting the privilege establishes prima facie that the information is entitled to protection under this section, any person requesting access to, or right of disclosure of, that information has the burden of proving that the privilege is asserted for a fraudulent purpose or that the privilege has been waived."
Sec. 2.  Part 1 of Article 7 of Chapter 143B of the General Statutes is amended by adding a new section to read:
"§ 143B-279.6.  Immunity for voluntarily disclosed violations.
(a)	Definitions. – For purposes of this section:
(1)	'Environmental audit report' has the same meaning as in G.S. 8-53.9.
(2)	'Environmental law' means all of the following portions of the General Statutes, any comparable federal, regional, or local laws or extensions of those statutes, and any rules, regulations, or interpretations that implement the following portions of the General Statutes or comparable federal, regional, or local laws:
a.	Article 7 of Chapter 74.
b.	Chapter 104E.
c.	Article 25 of Chapter 113.
d.	Articles 4 and 7 of Chapter 113A.
e.	Articles 9, 10, 11, and 19 of Chapter 130A.
f.	Articles 21, 21A, and 21B of Chapter 143.
(3)	'Imminent hazard' has the same meaning as in G.S. 130A-2.
(4)	'Department' means the Department of Environment, Health, and Natural Resources.
(b)	Immunity for Voluntary Disclosure. – No civil or criminal penalty may be imposed on a person or other entity that voluntarily discloses a violation of an environmental law pursuant to this section.  This immunity applies to any violation disclosed voluntarily, whether the disclosure is the result of an environmental audit report or otherwise, so long as the violation is disclosed pursuant to subsection (c) of this section.
(c)	Voluntary Disclosure. – A violation is voluntarily disclosed for purposes of this section if the disclosure satisfies all of the following:
(1)	The violation does not result in an imminent hazard.
(2)	The person or other entity voluntarily and promptly notifies the Department and, if required, notifies the United States Environmental Protection Agency or the United States Nuclear Regulatory Commission of the violation before the Department, the United States Environmental Protection Agency, or the United States Nuclear Regulatory Commission learns of the violation.  Notice must be given in the manner required by law, and within the time required by law or within 30 days, whichever is less.
(3)	The person or other entity voluntarily makes a complete and accurate written report of the violation to the Department and, if required, to the United States Environmental Protection Agency or the United States Nuclear Regulatory Commission in accordance with any applicable law, rule, regulation, or order, and within a reasonable time after notification is made under subdivison (2) of this subsection.
(4)	The disclosure is not required by a permit, order, or consent agreement governing the facility at which the violation occurred.
(5)	The person or other entity acts to correct the violation in a reasonably diligent manner.
(6)	The violation is not the result of an intentional or willfully reckless activity or action."
Sec. 3.  Part 5 of Article 52 of Chapter 143 of the General Statutes is amended by adding a new section to read:
"§ 143-469.1.  Immunity for voluntarily disclosed violations.
(a)	Definitions. – For purposes of this section:
(1)	'Environmental audit report' has the same meaning as in G.S. 8-53.9.
(2)	'Environmental law' means this Article, any comparable federal, regional, or local laws or extensions of this Article, and any rules, regulations, or interpretations that implement this Article or comparable federal, regional, or local laws.
(3)	'Imminent hazard' has the same meaning as in G.S. 130A-2.
(4)	'Department' means the Department of Agriculture.
(b)	Immunity for Voluntary Disclosure. – No civil or criminal penalty may be imposed on a person or other entity that voluntarily discloses a violation of an environmental law pursuant to this section.  This immunity applies to any violation disclosed voluntarily, whether the disclosure is the result of an environmental audit report or otherwise, so long as the violation is disclosed pursuant to subsection (c) of this section.
(c)	Voluntary Disclosure. – A violation is voluntarily disclosed for purposes of this section if the disclosure satisfies all of the following:
(1)	The violation does not result in an imminent hazard.
(2)	The person or other entity voluntarily and promptly notifies the Department and, if required, notifies the United States Environmental Protection Agency of the violation before the Department or the United States Environmental Protection Agency learns of the violation.  Notice must be given in the manner required by law, and within the time required by law or within 30 days, whichever is less.
(3)	The person or other entity voluntarily makes a complete and accurate written report of the violation to the Department and, if required, to the United States Environmental Protection Agency or the United States Nuclear Regulatory Commission in accordance with any applicable law, rule, regulation, or order, and within a reasonable time after notification is made under subdivison (2) of this subsection.
(4)	The disclosure is not required by a permit, order, or consent agreement governing the facility at which the violation occurred.
(5)	The person or other entity acts to correct the violation in a reasonably diligent manner.
(6)	The violation is not the result of an intentional or willfully reckless activity or action."
Sec. 4.  G.S. 74-64 is amended by adding a new subsection to read:
"( c)	G.S. 143B-279.6 governs civil and criminal penalties under this Article."
Sec. 5.  G.S. 104E-23 is amended by adding a new subsection to read:
"( c)	G.S. 143B-279.6 governs criminal penalties under this Chapter."
Sec. 6.  G.S. 104E-24 is amended by adding a new subsection to read:
"( e)	G.S. 143B-279.6 governs civil penalties under this Chapter."
Sec. 7.  G.S. 113-337 is amended by adding a new subsection to read:
"( c)	G.S. 143B-279.6 governs criminal penalties under this Article."
Sec. 8.  G.S. 113A-64 is amended by adding a new subsection to read:
"( c)	G.S. 143B-279.6 governs civil and criminal penalties under this Article."
Sec. 9.  G.S. 113A-126 is amended by adding a new subsection to read:
"( e)	G.S. 143B-279.6 governs civil and criminal penalties under this Article."
Sec. 10.  Part 2 of Article 1 of Chapter 130A of the General Statutes is amended by adding a new section to read:
"§ 130A-26.3.  Immunity for voluntarily disclosed violations.
G.S. 143B-279.6 governs civil and criminal penalties under Articles 9, 10, 11, and 19 of this Chapter."
Sec. 11.  G.S. 143-215.6A is amended by adding a new subsection to read:
"( l)	G.S. 143B-279.6 governs civil penalties under this Part."
Sec. 12.  G.S. 143-215.6B is amended by adding a new subsection to read:
"( k)	G.S. 143B-279.6 governs criminal penalties under this Part."
Sec. 13.  G.S. 143-215.58 is amended by adding a new subsection to read:
"( d)	G.S. 143B-279.6 governs criminal penalties under this Part."
Sec. 14.  G.S. 143-215.88A is amended by adding a new subsection to read:
"( c)	G.S. 143B-279.6 governs civil penalties under this Part."
Sec. 15.  G.S. 143-215.88B is amended by adding a new subsection to read:
"( h)	G.S. 143B-279.6 governs criminal penalties under this Part."
Sec. 16.  G.S. 143-216.98 is amended by designating the existing text as subsection (a) and by adding a new subsection to read:
"( b)	G.S. 143B-279.6 governs criminal penalties under this Part."
Sec. 17.  G.S. 143-215.102 is amended by adding a new subsection to read:
"( c)	G.S. 143B-279.6 governs civil and criminal penalties under this Part."
Sec. 18.  G.S. 215.114A is amended by adding a new subsection to read:
"( h)	G.S. 143B-279.6 governs civil penalties under this Part."
Sec. 19.  G.S. 143-215.114B is amended by adding a new subsection to read:
"( k)	G.S. 143B-279.6 governs criminal penalties under this Part."
Sec. 20.  This act is effective October 1, 1995.   Section 1 of this act applies to environmental audits begun on or after the date this act becomes effective.  The immunity from civil and criminal penalties created by Sections 2 through 19 of this act applies to any violation of an environmental law that is voluntarily disclosed as provided by this act on or after the date this act becomes effective.