As a result of a 2012 inspection, Respondent was cited for five repeat violations, which were issued on March 27, 2013. The citations upon which the repeat violations were based were issued to Wynnewood Refining while owned and operated by Gary Williams Energy (GWE), most of which became final orders of the Commission in April of 2007. Respondent contends that the present citations are not properly characterized as repeated on three separate bases…
First, Respondent contends that Complainant failed to comply with its own internal policies regarding the issuance of repeat citations because more than five years had elapsed since the underlying citations were issued.
Second, Respondent contends that it should not be held liable for repeat violations that are premised on violations committed by the previous owner of Wynnewood Refinery.
Third, Respondent contends that the current citations, and the citations which form the basis of the repeat characterization, are not substantially similar.
Based on what follows, the Court finds that Respondent is NOT a successor to GWE and that the citations at issue were IMPROPERLY characterized as repeated.
Prior to analyzing the question of successor liability, the Court would like to briefly address Respondent’s argument that Complainant violated its own citation policy by issuing the repeat citations more than five years after the underlying citations were issued. According to Complainant’s Field Operations Manual, a citation will be issued as a repeated violation if “[t]he citation is issued within five years of the final order date of the previous citation or within five years of the final abatement date, whichever is later… .” OSHA, Field Operations Manual, available at https://www.osha.gov/OshDoc/Directive_pdf/CPL_02-00-159.pdf.
Four out of the five citations were nearly (but not quite) six years old by the time the current, repeat citations were issued. Respondent contends that, although there is no statutory restriction on the “look-back” period for repeat violations, Complainant’s attempt to expand the applicable look-back period beyond its stated policy creates an “unworkable framework” wherein citations that were decades old could serve as the basis for a repeat citation.
According to the Commission, “A violation is properly classified as repeated under section 17(a) of the Act if, at the time of the alleged repeated violation, there was a Commission final order against the same employer for a substantially similar violation.” Hackensack Steel Corp., 20 BNA OSHC 1387 (No. 97-0755, 2003) (citing Jersey Steel Erectors, 16 BNA OSHC 1162, 1167–68 (No. 90-1307, 1993), aff’d without published opinion, 19 F.3d 643 (3rd Cir. 1994)). “[T]he ‘time between violations does NOT bear on whether a violation is repeated.” (citing Jersey Steel, 16 BNA OSHC at 1168).
Just as Respondent argues here, the employer in Hackensack argued that the then-current version of the Field Operations Manual (the Field Inspection Reference Manual) limited repeat citations to a period of three years after the issuance of the original citation. Citing to previous decisions, the Commission noted that the FOM and the FIRM “are only [] guide[s] for OSHA personnel to promote efficiency and uniformity, are not binding on OSHA or the Commission, and do not create any substantive rights for employers.” Accordingly, the Commission upheld the repeat characterization.
The Court finds that the enforcement policy of Complainant does NOT preclude the issuance of a repeat citation after more than five years. As noted by the Commission in Hackensack, such a policy is only a guide and does not confer rights upon employers. While Respondent’s concern regarding an ever-expanding look-back period is legitimate, the citations in this case all occurred within a six-year period, only slightly longer than the stated policy of Complainant. Because this Court is bound to follow the precedent set by the Commission, the Court rejects Respondent’s argument to vacate the repeat characterization on this basis.
Respondent’s second argument, however, is far more persuasive. The citations that form the basis of the repeat violations in this case were issued to GWE, which owned the Wynnewood Refinery until it was purchased by CVR Energy, Inc. in 2011. Respondent contends that it should not be held liable for repeat violations that are premised on violations committed by the previous owner of Wynnewood Refinery. Complainant argues that Respondent should be characterized as a successor-in-interest to GWE and therefore liable as a repeat offender under the Act.
The Commission addressed the issue of successor liability, albeit in a slightly different context, in Sharon & Walter Constr., Inc., 23 BNA OSHC 1286 (No. 00-1402, 2010). In that case, OSHA cited Sharon & Walter Construction, Inc. (“S&W II”) for repeat violations of the construction fall protection standards. The underlying citations were issued to Walter Jensen d/b/a S&W Construction (“S&W I”). S&W I filed for bankruptcy and ceased operations approximately six weeks prior to the formation of S&W II. Walter Jensen was the sole proprietor of S&W I, as well as the president, director, and solitary shareholder of S&W II. Both companies were based in New Hampshire, and both “provided essentially the same construction services… .” Id.
The starting point of the Commission’s analysis is the language of Section 17(a) of the Act, which states, “Any employer who… repeatedly violates… the Act… may be assessed a civil penalty of not more than $70,000 for each violation.” 29 U.S.C. § 666(a). Applying a plain meaning analysis to the statute, the Commission found that there is “no language in the statute that would compel restricting attribution of an employer’s violation history to the identical legal entity, nor do we find anything that would preclude attribution of a predecessor’s citation history to a successor.” Sharon & Walter, 23 BNA OSHC 1286 at *7. In other words, the statute is ambiguous in this context.
The Commission resolved the ambiguity by looking at the purpose of Section 17(a) in the context of the Act as a whole. Id. at 8 (citing Gade v. Nat’l Solid Wastes Mgmt. Ass’n, 505 U.S. 88, 99–100 (1992)). The Supreme Court has held that the Act “is to be liberally construed to effectuate the congressional purpose”, Whirlpool Corp. v. Marshall, 445 U.S. 1, 10–11 (1990), which is to “assure so far as possible every working man and woman in the Nation safe and healthful working conditions and to preserve our human resources.” 29 U.S.C. § 651(b). Thus, to carry out this purpose, the “enforcement framework creates a deterrent to an employer that might otherwise ignore potential hazards . . . and an enhanced deterrent against subsequent infractions ‘once alerted by a citation and final order.’” Sharon & Walter, 23 BNA OSHC 1286 at *8 (quoting Dun-Par Eng’d Form Co. v. Marshall, 676 F.2d 1333, 1337 (10th Cir. 1982)).
Given its determination that the threat of a repeat characterization is designed as a deterrent to future bad behavior, the Commission held that “section 17(a) is most reasonably read to permit, in appropriate circumstances, the Secretary’s application of a “repeat” characterization to cases where the employer has altered its legal identity from that of the predecessor employer whose citation history forms the basis of that characterization.” (emphasis added). This reading stems from the Commission’s concern that an overly restrictive application of Section 17(a) “could ‘creat[e] an economic incentive to avoid a penalty by going out of business and, perhaps, then reincorporating under a different name.’” (quoting Joel Yandell, 18 BNA OSHC 1623, 1625 (No. 94-3080, 1999) (internal citations omitted)). To the extent that such a possibility could undermine the purpose of the repeat characterization under 17(a), the Commission found it appropriate to “allow attribution of a predecessor’s citation history to a successor in appropriate circumstances.”
At the urging of the Secretary, and after its own review of relevant case law, the Commission determined that the substantial continuity test used by the National Labor Relations Board and the courts “promotes the Act’s goals of ensuring workplace health and safety by preserving the deterrent effect of a repeat characterization, and is appropriately adapted to a determination of the requisite nexus between a successor and predecessor’s violation history for purposes of ascribing a repeat characterization under the OSH Act.” Id. at *9; see also Nat’l Labor Relations Bd. v. Burns, 406 U.S. 272, 280–81 (1972). The Commission found that “this test enables us to fully assess the nature and extent of the distinctions and similarities between a successor and a predecessor based on criteria that are well-suited to the OSH Act and the facts of each case before us.” Id. (citing Howard Johnson Co. Inc. v. Detroit Local Jt. Bd., Hotel and Rest. Employees, 417 U.S. 249, 263, n.9 (1974) (noting successorship cases require an analysis based on “the facts of each case and the particular legal obligation which is at issue”)). In particular, the Commission noted that the substantial continuity test focuses on factors that fall into three primary categories:
(1) nature of the business,
(2) jobs and working conditions, and
(3) personnel.
Applying the foregoing test to the facts of Sharon & Walter, the Commission found that S&W II was a successor to S&W I. The nature of the business—roofing and general construction—did not change. In particular, the Commission noted that both entities served customers in the same geographic area, and occupied the same office space and use the same telephone number. Further, a check drawn on an account belonging to S&W I was used to pay a debt of S&W II, and S&W II continued performance on a contract entered into by S&W I. Because the employing entity and the nature of the business remained “essentially unchanged”, the jobs and working conditions also remained the same—both companies provided the same general construction services, which required the same tools and exposed employees to the same hazards.
As to the third category — personnel — the Commission noted that “continuity of personnel who specifically control decisions related to safety and health is certainly relevant in the context of the Act because the decisions of such personnel relate directly to the extent to which the employer complies with the statute’s requirements.” (emphasis added). In that regard, finding that S&W II was a successor to S&W I was a fairly perfunctory exercise. As noted above, Walter Jensen was the sole proprietor of S&W I, and the president, sole shareholder, and supervisor of S&W II. Accordingly, “Jensen’s control over decision-making in both companies, including that related to employee safety and health, weighs heavily in favor of attributing S&W I’s citation history to S&W II.” Id. Notably, however, the Commission placed little to no weight on the continuity of nonsupervisory employees, “because those employees are not responsible for OSH Act compliance and would not have supervised its implementation.”
In this case, there is no real dispute as to the first two categories of factors. It is clear that the Wynnewood refinery is still in the business of refining oil, produces similar products, and services similar customers. Likewise, as testified to by many of Respondent’s employees, the jobs and working conditions have remained essentially unchanged since Respondent’s purchase of the refinery from GWE. Thus, the remaining factor to consider is the continuity of personnel who control the decisions related to safety and health. The Court finds that this factor, more than the others, is particularly relevant to the issue of whether a successor should be held liable for the acts of its predecessor.
In 2007, when the original, underlying citations were issued, GWE was the owner of the Wynnewood Refinery. Nearly all of Respondent’s current and former employees testified that, upon Wynnewood’s acquisition by Respondent in December 2011, the new company placed significant emphasis on improving safety and health and proper implementation of PSM. This included changes to policies, procedures, and the overall culture of safety at Wynnewood Refinery. Some of the other changes noted by Respondent included:
(1) nearly doubling the number of safety personnel at the refinery, including four new assistant operations supervisors, who were responsible for procedure development, compliance, PSM, and occupational safety;
(2) new, high-level executives, including the Executive Vice President for Operations and the Vice President of Environmental Health and Safety, were more involved in the day-to-day operations, and were present on a frequent basis to oversee the transition from GWE;
(3) a $130 million upgrade to equipment; and
(4) more formalized training programs and a renewed emphasis on “management of change”(MOC) procedures.
In support of its argument that there was continuity of personnel sufficient to find successor liability, Complainant points to the following:
(1) Respondent’s current PSM Manager, and Respondent’s former operations manager, were members of management before and after the acquisition; and
(2) key personnel and managers who were present at the time of the underlying violations were still working in Zone 2 at the time of the accident.
Although these individuals were responsible for implementing safety and health policies, and may have had input into them, there was no indication that these individuals were ultimately responsible for making the decision to change safety and health procedures, PSM policies, and organizational culture. See Sharon & Walter, 23 BNA OSHC 1286 at *10 (focusing “continuity of personnel” analysis on “who specifically controls decisions related to safety and health”).
There were significant changes in the management of Wynnewood. Specifically, the VP/GM of Respondent’s Coffeyville refinery and former operations manager at Wynnewood noted that GWE management was less involved in day-to-day operations, whereas CVR’s corporate management, inclusive of its Vice President of Safety, Health, and Environment and Executive Vice President of Operations were actively involved in daily operations. This, in and of itself, is a strong fact in favor of Respondent—new corporate management responsible for ultimate decision-making in the areas of operations and safety and health. It should also be noted that neither of these men, nor any of the other CVR managers, worked for GWE.
In Sharon & Walter, the Commission was concerned with applying section 17(a) in an overly restrictive manner such that companies could evade higher penalties by merely changing form, but it is equally problematic to be over-inclusive. Respondent notes that successor liability has not previously been imposed under circumstances such as these. In Sharon & Walter, the Commission was careful to note that successor liability for repeat violations should only be applied in “appropriate circumstances” and proceeded to do so based on a unique set of facts. The primary concern was manipulation — the Commission repeatedly discussed the possibility that an employer could avoid liability by “changing its legal identity for each new project” or “by going out of business and… reincorporating under a different name.” Sharon & Walter, 23 BNA OSHC 1286
When viewed through that lens, the scope of the Commission’s interpretation of section 17(a) becomes clearer: repeat violations based on successor liability would be appropriate when the cited employer “altered its legal identity from that of the predecessor employer… .” (emphasis added). In other words, the Commission sought to prevent manipulation of the system, not to expand liability.
The purpose of a repeat violation is to deter an employer from committing violations by drastically increasing the penalty for subsequent, substantially similar violations. Dun-Par, 676 F.2d at 1337. This implies that the employer was responsible for the underlying violation. While higher penalties are a deterrent, irrespective of the basis therefor, there must be some justification for increasing the penalties in the first instance. Respondent did not commit the underlying violations in this case. Drastically increasing the penalty for a violation that occurred on someone else’s watch does not deter future misconduct because there was no past misconduct to deter.
Complainant seeks to circumvent this problem by arguing that CVR-WR was on notice of the underlying violations when it acquired Wynnewood from GWE-WR and is therefore responsible for any obligations stemming from them. Without citing case law, Complainant attempts to analogize economic obligations acquired in the purchase of a business and OSHA citations that were incurred by the former owner, stating:
If the new employer has notice of the obligation, then the price paid for the business will reflect that knowledge and it is fair to impose the obligation on the new employer. In the OSHA context, notice shows culpability on the part of the new employer and supports imposition of a higher repeat penalty because the new employer had notice of the violative condition but failed to prevent its occurrence.” Compl’t Br. at 28.
First, a prior OSHA citation, which has become a final order of the Commission, is not an outstanding obligation.
Second, notice does not, on its own, equal culpability as argued by Complainant.
The importance of notice can be seen in the distinction between a willful violation and a repeat violation. A willful violation is punishment for what an employer knew before it committed a violation. See, e.g., Sharon & Walter, 23 BNA OSHC 1286 at *5 (citing Kaspar Wire Works, Inc., 18 BNA OSHC 2178, 2181 (No. 90-2775, 2000) (“The hallmark of a willful violation is the employer’s state of mind at the time of the violation – an ‘intentional, knowing, or voluntary disregard for the requirements of the Act or … plain indifference to employee safety.’”).
A repeat violation is punishment for what an employer did (or did not do) in the past. See Dun-Par Eng’d Form Co. v. Marshall, 676 F.2d 1333, 1337 (10th Cir. 1982) (“Once an employer has been cited for an infraction under a standard, this tends to apprise the employer of the requirements of the standard and to alert him that special attention may be required to prevent future violations of the standard.”). Thus, in the context of successor liability, the Court must be mindful of who we are holding responsible and what we are holding them responsible for.
The threat of increased penalties for subsequent violations only makes sense if the same employer was responsible for the underlying past violation. In the case of Sharon & Walter, though the “employer” was different in name, the controlling entity (Walter Jensen) did not change. What Complainant proposes—holding CVR-WR, a separate and distinct purchasing entity, responsible for what GWE-WR did in the past—expands repeat liability beyond what the Commission envisioned when it decided Sharon & Walter. Based on the facts and law discussed above, the Court holds that the citations issued to Respondent were IMPROPERLY characterized as repeat.
This case is not a final order of the Review Commission as it is pending Commission Review.
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