If your company ships hazardous materials (a/k/a “HAZMAT”), a single misstep could cause your business to incur hundreds of thousands of dollars in penalties.
In fact, every day HAZMAT shippers are slapped with penalties issued by the Federal Aviation Administration (FAA)–and the penalty amounts sometimes reach seven figures or more.
If you think “well, I made only one mistake–I won’t get caught,” or if you think you can talk yourself out of getting a penalty like you do a speeding ticket, think again. When the FAA investigates an incident and issues a penalty, you can bet what you think is just one violation will quickly become multiple violations.
FAA regulations require proper marking, printing, labeling, describing, packing, and classifying HAZMAT. Also, there is another set of regulations for the training of employees and recordkeeping of shipments. Understanding the FAA’s policies and procedures in HAZMAT penalty cases is a necessary first step to mitigating what can be exorbitant penalties.
The FAA issues the penalties for violations of the Department of Transportation Hazardous Materials Regulations (HMR) found at 49 CFR Parts 171 to 185 pursuant to the Federal Hazardous Materials Transportation Law, 49 U.S.C. Sections 5101 to 5127. The FAA penalties have increased from $10,000 to now $50,000 for each violation of the HMR that occurred after August 10, 2005. It is common for the FAA to issue a penalty for hundreds of thousands of dollars against a company for illegally shipping, or even attempting to ship, a HAZMAT on an aircraft, including shipments provided to FedEx, UPS, or DHL. Penalties are often issued against any shippers, including Fortune 500 companies and even foreign companies shipping cargo to the United States. Penalties may be issued by the FAA if the HAZMAT is not packaged, marked, classed, described, documented, or in condition for shipment as required by regulations.
The FAA HAZMAT Penalty Procedures
The most common scenario occurs when an undeclared HAZMAT shipment is provided to an airline, and the airline reports the suspected violation to the FAA. An FAA Special Agent with extensive experience in HAZMAT is immediately dispatched, and the Agent conducts an inspection and investigation of (a) the shipper, (2) the freight forwarder, and/or (3) the airline. The Agent often interviews, and obtains written statements, from persons involved in the incident. The Agent then submits a Report of Investigation to the nearest FAA legal office, called the Office of the Regional Counsel for review by its lawyers. The FAA lawyers then decide whether or not the violation should result in a written warning or a civil monetary penalty, and if so, what the amount of the penalty should be, and to which individual or company should the penalty be issued.
The FAA attorney then formally issues a “Notice of Proposed Civil Penalty” against the company or person who shipped or attempted to ship the HAZMAT. The Notice is usually addressed to the President or CEO of the company, and it specifies the facts and circumstances of the violation, cites the applicable sections of the HMR, and concludes with a demand for payment of the civil penalty.
The FAA offers the alleged violator some choices in a standard form attached to the Notice. Basically, your options are to (1) pay the penalty in full, (2) deny any violation and ask for a formal hearing, (3) make an offer of settlement, (4) ask for a telephonic and/or in-person informal conference with the FAA attorney to explain what happened and negotiate a lower, or no, penalty, or(5) allege financial inability to pay the penalty. The form must be completed and returned to the FAA attorney within 30 days with the selection of one of the choices above, and officially identifying the name and contact information for the attorney representing the company which received the penalty from the FAA.
I have handled many FAA HAZMAT cases from all over the United States. I have also lectured extensively on the topic of “Mitigating Civil Penalties Issued by the FAA For HAZMAT Violations”, including at the Dangerous Goods by Air 2001 Conference & Exhibition (February 14, 2001) sponsored by the International Air Transport Association (IATA), Keeping Dangerous Goods Safe in a Secure World (May 1, 2003) also sponsored by IATA, and Dangerous Goods Symposium for Instructors (November 9, 2006), sponsored by Labelmaster.
In the many cases that I have handled, I have always requested an informal conference with the FAA attorney. Requesting a formal hearing before an Administrative Law Judge should only be used when the FAA attorney is completely unreasonable in negotiating a settlement when there is a violation. The FAA has issued a FAQ for attorneys unfamiliar with the formal hearing process regulated by 14 CFR Part 13. Informal conferences give the company an opportunity to explain to the FAA its version of what happened and why it happened, and to allow the company, through its attorney, to present mitigating factors to reduce what otherwise may be a huge penalty.
Good Arguments to the FAA
The FAA has certain criteria set forth at 14 CFR Section 13.16(c) that it uses to evaluate the amount of a penalty. They generally are categorized as:
(1) the nature, circumstances, extent, and gravity of the violation;
(2) the degree of culpability, and history of prior violations, and the ability to pay; and
(3) “such other matters as justice may require”.
What is not stated is perhaps more important, and that is what corrective action has been taken by the company to prevent a recurrence of a similar violation. The extent and timing of such corrective action are significant factors in successfully mitigating penalties. A violation that occurred because of reasonable reliance on incorrect information from another source may be another successful argument. Companies should always seek mitigation pursuant to the Small Business Regulatory Enforcement Fairness Act (SBREFA). Finally, companies should consult the current Hazardous Materials Sanction Guidance Matrix found at Appendix A to 49 CFR Part 107.
Bad Arguments to the FAA
The FAA assesses penalties against companies and persons who “knowingly” commit a HAZMAT violation. Arguing that an employee of the company that illegally shipped the HAZMAT should not subject the company to the penalty is not a persuasive argument to the FAA attorney. Arguing that the airline did not know it had accepted the illegally shipped HAZMAT is equally unsuccessful because the FAA regulations require the shipper and the airline to exercise reasonable care, and therefore, it should have known that the shipment was an undeclared HAZMAT or has some other particular violation.
Concluding the FAA Case
After the informal conference has completed, and hopefully a reasonable settlement was achieved, the FAA attorney will issue a formal “Order Assessing Civil Penalty” which restates the agreed facts, the relevant sections of the HMR which the company admits to violating, and the amount of the agreed settlement penalty. The penalty may be paid within 60 days to the FAA by electronic payment or paper check.
Some Things to Remember
1. Educate and regularly train employees on HAZMAT;
2. Immediately get a knowledgeable attorney involved as soon as a HAZMAT incident occurs which could lead to an FAA investigation and penalty. Communicating with the assigned Special Agent during the investigation, and then the attorney within the Office of Regional Counsel before the issuance of a penalty can be critical; and
3. Take corrective action before the FAA issues its recommendations to do so.
With the penalties now $50,000 for each HAZMAT violation combined with more than 100 Special Agents within the FAA’s Office of Hazardous Materials, and a priority of the FAA to enforce hazardous materials regulations, 2009 and 2010 are very likely to be record years for collection of penalties by the FAA.