GENERAL ASSEMBLY OF NORTH CAROLINA

SESSION 1997

S	1 

SENATE BILL 957

Short Title:  Environmental Audits.	(Public)

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Sponsors: Senator Hoyle.

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Referred to:  Judiciary.

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April 17, 1997

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 EXEMPTIONS FROM CIVIL PENALTIES TO A PERSON OR OTHER ENTITY THAT VOLUNTARILY DISCLOSES A VIOLATION OF AN ENVIRONMENTAL LAW, AS RECOMMENDED BY THE ENVIRONMENTAL REVIEW COMMISSION.
The General Assembly of North Carolina enacts:
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, the General Assembly desires to encourage the performance of beneficial environmental audits by responsible members of the regulated community;  Now, therefore,
The General Assembly of North Carolina enacts:
Section 1.  Article 7 of 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 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.	Any document concerning the implementation of the audit report, including documents concerning tracking of corrective efforts as described in G.S. 143B-279.8(c)(5) and G.S. 143-469.1(c)(5).
e.	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.
f.	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 except when obtained in evaluating the facilities, activities, or management systems of the agency itself in the course of an environmental audit.
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.
i1.	Concerning a violation of an environmental law that constitutes an imminent hazard as defined in G.S. 130A-2.
(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 except when lawfully obtained pursuant to a criminal investigation and solely for the purpose of a criminal investigation.  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 or administrative proceeding except as provided in subsection (e) of this section.  No person shall be competent to testify in any civil 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) 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.  An environmental audit report prepared for an agency or subdivision of the government of this State shall be subject to disclosure as provided in Chapter 132 of the General Statutes but shall be privileged as provided in this section.  The release of information in an environmental audit report by an agency or subdivision of the government of this State pursuant to Chapter 132 of the General Statutes shall not constitute a waiver of the privilege.
(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 or administrative proceeding in which the  privilege is asserted, the court or the administrative law judge finds that the requirements of this subsection have been substantially met and the audit team made a good faith effort to comply with these requirements and to maintain the confidentiality of the environmental audit report during its preparation.
(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 (f) of this section.
(f)	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 that is identified in the environmental audit report.
e.	Failing to promptly initiate appropriate efforts to achieve compliance, to correct the violation in a reasonably diligent manner, and to take steps to prevent any recurrence of 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 the common law of this State, except to the extent that the common law doctrines of this State are inconsistent with this subsection.
(g)	Protective Orders. – Any required disclosure of any environmental audit report, or any portion thereof, shall be under terms that will protect from improper 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.
(h)	Stipulations. – The parties to a proceeding under subsection (e) 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.
(i)	Other Privileges Intact. – Nothing in this section shall limit, waive, or abrogate the scope or nature of any statutory or common law privilege recognized under the law of this State.
(j)	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 material is not subject to the privilege, that the privilege is asserted for a fraudulent purpose, or that the privilege has been waived."
Section 2.  Part 1 of Article 7 of Chapter 143B of the General Statutes is amended by adding a new section to read:
"§ 143B-279.8.  Penalty exemption 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.
(5)	'Regulatory permit' means any permit that is granted by action of environmental law, where there is no written permit, or where the permit contains terms incorporated by reference from any environmental law, and shall include, but is not limited to, any permission to operate an animal waste management system under Part 9A of Article 21 of Chapter 143 of the General Statutes.
(b)	Penalty Exemption for Voluntary Disclosure. – No civil penalty may be imposed on a person or other entity that voluntarily discloses a violation of an environmental law pursuant to this section.  This exemption 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 notifies the Department and, if required, notifies the United States Environmental Protection Agency or the United States Nuclear Regulatory Commission of the violation before: (i) the Department, the United States Environmental Protection Agency, or the United States Nuclear Regulatory Commission learns of the violation; or (ii) the commencement of a local, state, or federal inspection, investigation, or information request.  Notice must be given in the manner required by law, and within the time required by law or within 30 days of discovery, whichever is earlier.
(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, or within 60 days after notification is made under subdivision (2) of this subsection, whichever is earlier.
(4)	The disclosure is not expressly required by a permit, regulatory permit, law, rule, order, or consent agreement governing the facility at which the violation occurred or the disclosure, even if expressly required by a law or rule, is made as a result of an environmental audit report.
(5)	The person or other entity promptly initiates appropriate efforts to achieve compliance, acts to correct the violation in a reasonably diligent manner, and takes all steps reasonably necessary to prevent any recurrence of the violation.
(6)	The violation is not the result of an intentional or willfully reckless activity or action."
Section 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.  Penalty exemption 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.
(5)	'Regulatory permit' means any permit that is granted by action of environmental law, where there is no written permit, or where the permit contains terms incorporated by reference from any environmental law, and shall include, but is not limited to, any permission to operate an animal waste management system under Part 9A of Article 21 of Chapter 143 of the General Statutes.
(b)	Penalty Exemption for Voluntary Disclosure. – No civil penalty may be imposed on a person or other entity that voluntarily discloses a violation of an environmental law pursuant to this section.  This exemption 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 notifies the Department and, if required, notifies the United States Environmental Protection Agency or the United States Nuclear Regulatory Commission of the violation before: (i) the Department, the United States Environmental Protection Agency, or the United States Nuclear Regulatory Commission learns of the violation; or (ii) the commencement of a local, state, or federal inspection, investigation, or information request.  Notice must be given in the manner required by law, and within the time required by law or within 30 days of discovery, whichever is earlier.
(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, or within 60 days after notification is made under subdivision (2) of this subsection, whichever is earlier.
(4)	The disclosure is not expressly required by a permit, regulatory permit, law, rule, order, or consent agreement governing the facility at which the violation occurred or the disclosure, even if expressly required by a law or rule, is made as a result of an environmental audit report.
(5)	The person or other entity promptly initiates appropriate efforts to achieve compliance, acts to correct the violation in a reasonably diligent manner, and takes all steps reasonably necessary to prevent any recurrence of the violation.
(6)	The violation is not the result of an intentional or willfully reckless activity or action."
Section 4.  G.S. 74-64 is amended by adding a new subsection to read:
"( c)	G.S. 143B-279.8 governs civil penalties under this Article."
Section 5.  G.S. 104E-24 is amended by adding a new subsection to read:
"( e)	G.S. 143B-279.8 governs civil penalties under this Chapter."
Section 6.  G.S. 113A-64 is amended by adding a new subsection to read:
"( c)	G.S. 143B-279.8 governs civil penalties under this Article."
Section 7.  G.S. 113A-126 is amended by adding a new subsection to read:
"( e)	G.S. 143B-279.8 governs civil penalties under this Article."
Section 8.  Part 2 of Article 1 of Chapter 130A of the General Statutes is amended by adding a new section to read:
"§ 130A-26.3.  Penalty exemption for voluntarily disclosed violations.
G.S. 143B-279.8 governs civil penalties under Articles 9, 10, 11, and 19 of this Chapter."
Section 9.  G.S. 143-215.6A is amended by adding a new subsection to read:
"( l)	G.S. 143B-279.8 governs civil penalties under this Part."
Section 10.  G.S. 143-215.88A is amended by adding a new subsection to read:
"( c)	G.S. 143B-279.8 governs civil penalties under this Part."
Section 11.  G.S. 143-215.102 is amended by adding a new subsection to read:
"( c)	G.S. 143B-279.8 governs civil penalties under this Part."
Section 12.  G.S. 215.114A is amended by adding a new subsection to read:
"( h)	G.S. 143B-279.8 governs civil penalties under this Part."
Section 13.  The Environmental Review Commission shall monitor the implementation of this act.  To assist the Environmental Review Commission in monitoring the implementation of this act, the Department of Environment, Health, and Natural Resources and the Department of Agriculture shall annually assess the implementation of this act and shall report their findings and recommendations to the Environmental Review Commission.  The report shall be made on or before 1 October of each year, beginning 1 October 1998, and shall address at least:
(1)	The number of environmental audits that are conducted, based on information available to each department and information voluntarily supplied to the departments by persons who have conducted environmental audits.
(2)	Whether the exemption from civil penalties for violations that are voluntarily disclosed should be modified to allow for the imposition of a civil penalty in an amount necessary to offset the economic benefit gained by the violator as a result of the violation and if so, how the amount of the economic benefit would be calculated.
(3)	The effect of this act on compliance with environmental law including improved compliance as a result of environmental audits.
(4)	The effect of this act on federal delegation of program authority to the State and on federal approval of State programs that implement federal law and regulations.
Section 14.  This act becomes effective 1 October 1997.   Section 1 of this act applies to environmental audits begun on or after the date this act becomes effective.  The exemption from civil penalties created by Sections 2 through 12 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.
Section 15.  This act expires 1 October 2000.  An environmental audit report that is privileged against disclosure under Section 1 of this act while this act is in force shall remain privileged against disclosure as provided in Section 1 of this act after 1 October 2000.  An exemption from a civil penalty that is created  under Sections 2 through 12 of this act while this act is in force shall continue to exist as provided in Sections 2 through 12 of this act after 1 October 2000.