LP Gas, March 2010

Lets Talk Not just paperwork Know how to handle regulatory citations the implications for litigation M arketers are no strangers to governmental oversight The codes and regulations governing the propane industry from pipeline through transport storage and transfer to consumers are rigorously enforced by various state and local agencies Registration permitting inspections and regulatory enforcement have become an increasing part of the propane businesses Consequently many marketers treat a notice of violation and subsequent citation as routine Too often the notice gets tossed in a drawer by busy fi eld personnel or simply gets paid Neither is the best option The fi ne is only part of the potential cost Ultimately regulatory violations could cost millions of dollars when they are introduced in future lawsuits Handling citations Paying a fi ne after a notice of violation or citation is an admission It carries signifi cant legal implications beyond that one system one plant or one fi ne Yet marketers frequently obtain no legal advice about handling citations and as a result create bad evidence that is just waiting to be discovered No one is surprised when a notice of violation that was issued after an accident is later introduced as evidence in a case arising from that incident But many marketers dont realize that prior unrelated violations can also be used as evidence to justify high dollar verdicts While prior bad acts are generally not admissible to prove a propensity or disposition to engage in conduct on a specifi ed occasion the evidence may be admissible to prove some fact other than disposition such as intent method of operation or absence of mistake or accident Plaintiffs attorneys will seek to introduce evidence of prior code violations to show that a company is more blameworthy and deserves a large judgment to deter continued or repeated unsafe business practices This is particularly true in jurisdictions that permit punitive or exemplary damage awards They are looking for the smoking gun the litany of bad deeds in short evidence of corporate knowledge of safety problems justifying punitive damages In addition to scorched earth discovery requests to the marketer it has become commonplace for plaintiffs attorneys to submit Freedom of Information Act FOIA requests to the LP regulatory agencies in every state the defendant company does business The FOIA requests will ask for all prior citations written warnings and all compliance issues Defense counsel should zealously oppose admission of this evidence and it likely will prevail for the liability phase of trial Courts recognize the risk of jury passion and undue prejudice if this kind of evidence is introduced prior to a determination of liability for an accident This evidence is likely to be admitted for the damages phase of trial Extending the blame Marketers need to be aware that litigation goes far beyond the specifi c employee whose conduct is alleged to have caused an accident Safety violations have been admitted as proof of reckless disregard for the rights of others or corporate indifference to justify punitive damages and these decisions are being upheld on appeal The Kentucky Supreme Court allowed managements prior dealings with a regulatory agency to be a factor implicating the company as a whole in a charge of reckless disregard for the safety of others justifying punitive damages The court found that the cumulative conduct of employees demonstrated corporate recklessness The New Mexico Supreme Court held that a propane companys negligent installation together with its consistent violation of safety regulations amounted to corporate indifference and reckless conduct to cross the threshold for punitive damages An Illinois court allowed a history of violations to be admitted to justify punitive damages against a company that should have been aware of the regulatory violations but failed to employ an effective procedure to monitor and prevent these issues over a number of years Similar rulings have been made throughout the country Steps to take What should marketers do There are three important steps Prevent written notices of violation promptly correct all violations found during inspection and follow reporting requirements and appropriately challenge regulatory notices and citations The best way to prevent a written notice of violation is to develop a positive relationship with inspectors Being responsive and promptly addressing problems will result in an inspector picking up the phone instead of his pen Regulators are not hiding the ball inspection checklists are available on most agency Web sites or at their offi ces Routinely reviewing GUEST COLUMNIST CHARLENE WRIGHT Continued on page 24 www LPGasmagazine com March 2010 LPGas 23