Retailers Navigate Shifting Environmental Regulatory Landscape

The past decade has witnessed a monumental shift in regulatory oversight of retailers' environmental compliance programs. As a result, retailers have faced a crash course in the myriad hazardous waste control laws, once widely believed to be irrelevant in the retail context.

Historically, most enforcement has been at the state and local levels. But in just the past month, we've seen a flurry of retail-related activity from the U.S. Environmental Protection Agency, including the following:

1. A $3.5 million settlement with Whole Foods Market related to allegations of improper hazardous waste handling;
2. EPA's announcement of additional delays in the finalization of its proposed "Hazardous Waste Pharmaceuticals Rule"; and
3. The announcement of EPA's new "Retail Strategy" with respect to hazardous waste regulations.

Whole Foods Settlement

On September 20, 2016, EPA announced a settlement with Whole Foods arising from allegations that the company improperly handled hazardous waste in Texas, Arkansas, Louisiana, New Mexico and Oklahoma. The settlement followed a yearlong investigation initiated by the New Mexico Environment Department and subsequently referred to Region 6 EPA enforcement officials.

According to EPA, the federal investigation revealed that Whole Foods lacked a system to make hazardous waste determinations resulting in the improper disposal of hazardous waste, and improperly discarded spent lamps in violation of applicable universal waste rules. Statements from Whole Foods indicate that the products at issue included paint, fluorescent bulbs, household cleaners, bleach, beauty products, perfumes and nutritional supplements, among others.

To resolve these allegations, Whole Foods agreed to pay penalties of over $3.5 million and to implement the following supplemental environmental projects:

• Develop standard operating procedures sufficient to ensure that Whole Foods is in compliance with all applicable hazardous waste laws and regulations;
• Retain a third-party consultant and implement an electronic hazardous waste identification system to assist with the identification and classification of Whole Foods' solid waste streams; and
• Promote hazardous waste compliance in the retail industry through the funding of a $500,000 training program to educate Texas retailers on hazardous waste laws and the importance of maintaining an adequate hazardous waste compliance program.
• Larger retailers have by now become accustomed to state-level enforcement of similar hazardous waste regulations, most notably in California, where retailers have paid over $160 million in penalties and fines to settle claims of improper hazardous waste handling. And while EPA has not shied away from more issue-specific retail enforcement (most notably its $81.6 million settlement with Walmart in 2013 in connection with the company's alleged violations of the Clean Water Act, the Federal Insecticide, Fungicide, and Rodenticide Act, and the Resource Conservation and Recovery Act), we have not yet seen EPA actively involved in these types of statewide, broad investigations relating to the sufficiency of a retailer's hazardous waste compliance program. If this becomes a trend, retailers can expect to see increased scrutiny of their operations in areas of the country where retail enforcement has been less prevalent.

Rulemaking Update

Beginning in February 2014 with the Notice of Data Availability for the Retail Sector, and followed by the release last year of the proposed "Hazardous Waste Generator Improvements Rule" and "Management Standards for Hazardous Waste Pharmaceuticals Rule," EPA has committed significant resources toward and extensively engaged with retailers in an effort to address the retail compliance conundrum created by the application to the retail sector of environmental regulations developed with the industrial and manufacturing setting in mind.

Until recently, it was EPA's stated goal to finalize both the Generator and Pharmaceutical Rules this year. However, EPA sources have now confirmed that due in large part to the extensive comments received in response to the proposed Pharmaceutical Rule and the substantive nature of the issues raised by those comments, the final Pharmaceutical Rule will not be published until 2017, at the earliest. We understand that EPA still intends to publish a final Generator Rule in calendar year 2016.

There are two important developments for retailers to be aware of as they prepare for the finalization of these two rules. First, EPA recently indicated that the soon-to-be-finalized Generator Rule has undergone a significant overhaul since release of the proposed rule in 2015. While critics of the proposed Generator Rule are obviously pleased, if not made a bit anxious, by this news, this information makes it very difficult for the retail sector to prepare in any meaningful way for the release of the final Generator Rule.

Second, the finalization of the Generator Rule, without finalization of the accompanying Pharmaceutical Rule, will likely create compliance headaches for retailers. Without the companion Pharmaceutical Rule, retailers may be left without a mechanism to avoid Large Quantity Generator (LQG) status and, as such, may, until publication of the final Pharmaceutical Rule, be forced to overhaul their hazardous waste compliance programs to comply with the onerous LQG requirements under the new Hazardous Waste Generator Rules.

Given the uncertainty surrounding the finalization of the Pharmaceutical Rule, any substantial period of time between finalization of the Generator and Pharmaceutical Rules is likely to create significant compliance challenges for the retail community.

EPA Retail Strategy

Finally, last month, EPA announced its new "Strategy for Addressing the Retail Sector Under RCRA's Regulatory Framework." Building on EPA's efforts in creating the new Generator and Pharmaceutical Rules, and the significant retailer engagement undertaken by EPA in development of the same, EPA has identified the following priorities in its efforts to rationalize the retail regulatory framework:

• Finalization of the new Generator and Pharmaceutical Rules;
• Issuing guidance on recycling aerosol cans;
• Expanding universal waste rules to include aerosol cans; and
• Issuing guidance regarding the proper use of reverse distribution by retailers.

While this retail strategy leaves many questions unanswered, EPA's recent commitment to address the unique challenges faced by retailers attempting to comply with hazardous waste rules designed for the industrial and manufacturing sector preliminarily has been well received by the regulated community. Given the significant activity from EPA in recent weeks, we hope to have more answers in the coming months about how these challenges will finally be addressed.

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Ted Wolff is a partner in the New York office of Manatt, Phelps & Phillips, LLP, where he represents retail and other clients in environmental disputes and transactional matters. He can be reached at twolff@manatt.com.

Matthew Williamson is a partner in Manatt, Phelps & Phillips, LLP's Orange County office. He regularly represents clients in environmental compliance matters, including retail clients facing enforcement actions related to their hazardous waste handling practices and implementing effective corporate hazardous waste compliance programs. He can be reached at mwilliamson@manatt.com.

Matthew Dombroski, counsel with Manatt, Phelps & Phillips, LLP, in New York, regularly counsels clients with respect to environmental corporate compliance, environmental issues in connection with real estate transactions and corporate dispositions, and regulatory compliance and toxic tort litigation. He can be reached at mdombroski@manatt.com.

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