By Chisum, Duncan, Talton, Uher, Stiles, et al. H.B. No. 2473 A BILL TO BE ENTITLED 1-1 AN ACT 1-2 relating to audits to determine compliance with certain laws, 1-3 rules, and regulations; providing penalties. 1-4 BE IT ENACTED BY THE LEGISLATURE OF THE STATE OF TEXAS: 1-5 SECTION 1. SHORT TITLE. This Act may be cited as the Texas 1-6 Environmental, Health, and Safety Audit Privilege Act. 1-7 SECTION 2. PURPOSE. The purpose of this Act is to encourage 1-8 voluntary compliance with environmental and occupational health and 1-9 safety laws. 1-10 SECTION 3. DEFINITIONS. (a) In this Act: 1-11 (1) "Audit report" means an audit report described by 1-12 Section 4 of this Act. 1-13 (2) "Environmental or health and safety law" means: 1-14 (A) a federal or state environmental or 1-15 occupational health and safety law; or 1-16 (B) a rule, regulation, or regional or local law 1-17 adopted in conjunction with a law described by Paragraph (A) of 1-18 this subdivision. 1-19 (3) "Environmental or health and safety audit" means a 1-20 systematic voluntary evaluation, review, or assessment of 1-21 compliance with environmental or health and safety laws or any 1-22 permit issued under those laws conducted by an owner or operator, 1-23 an employee of the owner or operator, or an independent contractor 1-24 of: 2-1 (A) a regulated facility or operation; or 2-2 (B) an activity at a regulated facility or 2-3 operation. 2-4 (4) "Owner or operator" means a person who owns or 2-5 operates a regulated facility or operation. 2-6 (5) "Penalty" means an administrative, civil, or 2-7 criminal sanction imposed by the state to punish a person for a 2-8 violation of a statute or rule. The term does not include a 2-9 technical or remedial provision ordered by a regulatory authority. 2-10 (6) "Person" means an individual, corporation, 2-11 business trust, partnership, association, and any other legal 2-12 entity. 2-13 (7) "Regulated facility or operation" means a facility 2-14 or operation that is regulated under an environmental or health and 2-15 safety law. 2-16 (b) A person acts intentionally for purposes of this Act if 2-17 the person acts intentionally within the meaning of Section 6.03, 2-18 Penal Code. 2-19 (c) For purposes of this Act, a person acts knowingly, or 2-20 with knowledge, with respect to the nature of the person's conduct 2-21 when the person is aware of the person's physical acts. A person 2-22 acts knowingly, or with knowledge, with respect to the result of 2-23 the person's conduct when the person is aware that the conduct will 2-24 cause the result. 2-25 (d) A person acts recklessly or is reckless for purposes of 2-26 this Act if the person acts recklessly or is reckless within the 2-27 meaning of Section 6.03, Penal Code. 3-1 (e) To fully implement the privilege established by this 3-2 Act, the term "environmental or health and safety law" shall be 3-3 construed broadly. 3-4 SECTION 4. AUDIT REPORT. (a) An audit report is a report 3-5 that includes each document and communication, other than those set 3-6 forth in Section 8 of this Act, produced from an environmental or 3-7 health and safety audit. 3-8 (b) General components that may be contained in a completed 3-9 audit report include: 3-10 (1) a report prepared by an auditor, monitor, or 3-11 similar person, which may include: 3-12 (A) a description of the scope of the audit; 3-13 (B) the information gained in the audit and 3-14 findings, conclusions, and recommendations; and 3-15 (C) exhibits and appendices; 3-16 (2) memoranda and documents analyzing all or a portion 3-17 of the materials described by Subdivision (1) of this subsection or 3-18 discussing implementation issues; and 3-19 (3) an implementation plan or tracking system to 3-20 correct past noncompliance, improve current compliance, or prevent 3-21 future noncompliance. 3-22 (c) The types of exhibits and appendices that may be 3-23 contained in an audit report include supporting information that is 3-24 collected or developed for the primary purpose of and in the course 3-25 of an environmental or health and safety audit, including: 3-26 (1) interviews with current or former employees; 3-27 (2) field notes and records of observations; 4-1 (3) findings, opinions, suggestions, conclusions, 4-2 guidance, notes, drafts, and memoranda; 4-3 (4) legal analyses; 4-4 (5) drawings; 4-5 (6) photographs; 4-6 (7) laboratory analyses and other analytical data; 4-7 (8) computer-generated or electronically recorded 4-8 information; 4-9 (9) maps, charts, graphs, and surveys; and 4-10 (10) other communications associated with an 4-11 environmental or health and safety audit. 4-12 (d) To facilitate identification, each document in an audit 4-13 report should be labeled "COMPLIANCE REPORT: PRIVILEGED DOCUMENT," 4-14 or labeled with words of similar import. Failure to label a 4-15 document under this section does not constitute a waiver of the 4-16 audit privilege or create a presumption that the privilege does or 4-17 does not apply. 4-18 (e) Once initiated, an audit shall be completed within a 4-19 reasonable time not to exceed six months unless an extension is 4-20 approved by the governmental entity with regulatory authority over 4-21 the regulated facility or operation based on reasonable grounds. 4-22 SECTION 5. PRIVILEGE. (a) An audit report is privileged as 4-23 provided in this section. 4-24 (b) Except as provided in Sections 6, 7, 8, and 9 of this 4-25 Act, any part of an audit report is privileged and is not 4-26 admissible as evidence or subject to discovery in: 4-27 (1) a civil action, whether legal or equitable; 5-1 (2) a criminal proceeding; or 5-2 (3) an administrative proceeding. 5-3 (c) A person, when called or subpoenaed as a witness, cannot 5-4 be compelled to testify or produce a document related to an 5-5 environmental or health and safety audit if: 5-6 (1) the testimony or document discloses any item 5-7 listed in Section 4 of this Act that was made as part of the 5-8 preparation of an environmental or health and safety audit report 5-9 and that is addressed in a privileged part of an audit report; and 5-10 (2) for purposes of this subsection only, the person 5-11 is: 5-12 (A) a person who conducted any portion of the 5-13 audit but did not personally observe the physical events; 5-14 (B) a person to whom the audit results are 5-15 disclosed under Section 6(b) of this Act; or 5-16 (C) a custodian of the audit results. 5-17 (d) A person who conducts or participates in the preparation 5-18 of an environmental or health and safety audit and who has actually 5-19 observed physical events of violation, may testify about those 5-20 events but may not be compelled to testify about or produce 5-21 documents related to the preparation of or any privileged part of 5-22 an environmental or health and safety audit or any item listed in 5-23 Section 4 of this Act. 5-24 (e) An employee of a state agency may not request, review, 5-25 or otherwise use an audit report during an agency inspection of a 5-26 regulated facility or operation, or an activity of a regulated 5-27 facility or operation. 6-1 (f) A party asserting the privilege described in this 6-2 section has the burden of establishing the applicability of the 6-3 privilege. 6-4 SECTION 6. EXCEPTION: WAIVER. (a) The privilege described 6-5 by Section 5 of this Act does not apply to the extent the privilege 6-6 is expressly waived by the owner or operator who prepared the audit 6-7 report or caused the report to be prepared. 6-8 (b) Disclosure of an audit report or any information 6-9 generated by an environmental or health and safety audit does not 6-10 waive the privilege established by Section 5 of this Act if the 6-11 disclosure: 6-12 (1) is made to address or correct a matter raised by 6-13 the environmental or health and safety audit and is made only to: 6-14 (A) a person employed by the owner or operator, 6-15 including temporary and contract employees; 6-16 (B) a legal representative of the owner or 6-17 operator; 6-18 (C) an officer or director of the regulated 6-19 facility or operation or a partner of the owner or operator; or 6-20 (D) an independent contractor retained by the 6-21 owner or operator; 6-22 (2) is made under the terms of a confidentiality 6-23 agreement between the person for whom the audit report was prepared 6-24 or the owner or operator of the audited facility or operation and: 6-25 (A) a partner or potential partner of the owner 6-26 or operator of the facility or operation; 6-27 (B) a transferee or potential transferee of the 7-1 facility or operation; 7-2 (C) a lender or potential lender for the 7-3 facility or operation; 7-4 (D) a governmental official or a state or 7-5 federal agency; or 7-6 (E) a person or entity engaged in the business 7-7 of insuring, underwriting, or indemnifying the facility or 7-8 operation; or 7-9 (3) is made under a claim of confidentiality to a 7-10 governmental official or agency by the person for whom the audit 7-11 report was prepared or by the owner or operator. 7-12 (c) A party to a confidentiality agreement described in 7-13 Subsection (b)(2) of this section who violates that agreement is 7-14 liable for damages caused by the disclosure and for any other 7-15 penalties stipulated in the confidentiality agreement. 7-16 (d) Information that is disclosed under Subsection (b)(3) of 7-17 this section is confidential and is not subject to disclosure under 7-18 Chapter 552, Government Code. A public entity, public employee, or 7-19 public official who discloses information in violation of this 7-20 subsection commits an offense. An offense under this subsection is 7-21 a Class B misdemeanor. It is an affirmative defense to the 7-22 clerical dissemination of a privileged audit report that the report 7-23 was not clearly labeled "COMPLIANCE REPORT: PRIVILEGED DOCUMENT" 7-24 or words of similar import. The lack of labeling may not be raised 7-25 as a defense if the entity, employee, or official knew or had 7-26 reason to know that the document was a privileged audit report. 7-27 SECTION 7. EXCEPTION: DISCLOSURE REQUIRED BY COURT OR 8-1 ADMINISTRATIVE HEARINGS OFFICIAL. (a) A court or administrative 8-2 hearings official with competent jurisdiction may require 8-3 disclosure of a portion of an audit report in a civil, criminal, or 8-4 administrative proceeding if the court or administrative hearings 8-5 official determines, after an in camera review consistent with the 8-6 appropriate rules of procedure, that: 8-7 (1) the privilege is asserted for a fraudulent 8-8 purpose; 8-9 (2) the portion of the audit report is not subject to 8-10 the privilege under Section 8 of this Act; or 8-11 (3) the portion of the audit report shows evidence of 8-12 noncompliance with an environmental or health and safety law and 8-13 appropriate efforts to achieve compliance with the law were not 8-14 promptly initiated and pursued with reasonable diligence after 8-15 discovery of noncompliance. 8-16 (b) A party seeking disclosure under this section has the 8-17 burden of proving that Subsection (a)(1), (2), or (3) of this 8-18 section applies. 8-19 (c) Notwithstanding Chapter 2001, Government Code, a 8-20 decision of an administrative hearings official under Subsection 8-21 (a)(1), (2), or (3) of this section is directly appealable to a 8-22 court of competent jurisdiction without disclosure of the audit 8-23 report to any person unless so ordered by the court. 8-24 (d) A person claiming the privilege is subject to sanctions 8-25 as provided by Rule 215 of the Texas Rules of Civil Procedure if 8-26 the court finds that the person intentionally or knowingly claimed 8-27 the privilege for unprotected information as provided in Section 8 9-1 of this Act. 9-2 (e) A determination of a court under this section is subject 9-3 to interlocutory appeal to an appropriate appellate court. 9-4 SECTION 8. NONPRIVILEGED MATERIALS. (a) The privilege 9-5 described in this Act does not apply to: 9-6 (1) a document, communication, datum, or report or 9-7 other information required by a regulatory agency to be collected, 9-8 developed, maintained, or reported under a federal or state 9-9 environmental or health and safety law; 9-10 (2) information obtained by observation, sampling, or 9-11 monitoring by a regulatory agency; or 9-12 (3) information obtained from a source not involved in 9-13 the preparation of the environmental or health and safety audit 9-14 report. 9-15 (b) This section does not limit the right of a person to 9-16 agree to conduct and disclose an audit report. 9-17 SECTION 9. COURT REVIEW AND DISCLOSURE. (a) If there is 9-18 reasonable cause to believe a criminal offense has been committed 9-19 under an environmental or health and safety law, the attorney 9-20 representing the state may obtain an audit report for which a 9-21 privilege is asserted under this Act under a search warrant, 9-22 criminal subpoena, or discovery as allowed by the Code of Criminal 9-23 Procedure and the Texas Rules of Criminal Procedure. 9-24 (b) On receipt of the audit report, the attorney 9-25 representing the state shall seal the report and may not review or 9-26 disclose the contents of the report. 9-27 (c) Not later than the 30th day after the date an audit 10-1 report is received under Subsection (a), the owner or operator who 10-2 prepared the report or for whom the report was prepared may file 10-3 with a court of competent jurisdiction a petition requesting an in 10-4 camera review to determine whether all or a portion of the report 10-5 is privileged or is subject to disclosure under this Act. An owner 10-6 or operator who fails to file a petition under this subsection 10-7 within the period specified by this subsection waives the 10-8 privilege. 10-9 (d) On the filing of a petition under Subsection (c) of this 10-10 section, the court shall issue an order that: 10-11 (1) schedules the in camera review for a date not 10-12 later than the 45th day after the date the petition is filed; and 10-13 (2) authorizes the attorney representing the state to 10-14 remove the seal from the report to review the report, subject to 10-15 appropriate limitations on distribution or disclosure of the report 10-16 that are specified in the order to protect against unnecessary 10-17 disclosure. 10-18 (e) The attorney representing the state may consult with 10-19 enforcement agencies regarding the contents of the report as 10-20 necessary to prepare for the in camera review. 10-21 (f) Information used in preparation for the in camera review 10-22 under Subsection (e) of this section: 10-23 (1) is confidential; 10-24 (2) may not be used in any investigation or legal 10-25 proceeding; and 10-26 (3) is not subject to disclosure under Chapter 552, 10-27 Government Code. 11-1 (g) Subsection (f) of this section does not apply to 11-2 information a court finds to be subject to disclosure. 11-3 (h) On the motion of a party, a court or the appropriate 11-4 administrative official shall suppress evidence offered in any 11-5 civil, criminal, or administrative proceeding that arises or is 11-6 derived from review, disclosure, or use of information obtained 11-7 under this section if the review, disclosure, or use is not 11-8 authorized under this section. A party allegedly failing to comply 11-9 with this section has the burden of proving that the evidence 11-10 offered did not arise and was not derived from the unauthorized 11-11 review, disclosure, or use. 11-12 (i) The parties may stipulate to entry of an order directing 11-13 that specific information contained in an audit report is or is not 11-14 subject to the privilege. 11-15 (j) A court may compel the disclosure of only those portions 11-16 of an audit report relevant to issues in dispute in the proceeding. 11-17 (k) A court may find a person who discloses information in 11-18 violation of this section in contempt of court and may order other 11-19 appropriate relief. 11-20 SECTION 10. VOLUNTARY DISCLOSURE; IMMUNITY. (a) Except as 11-21 provided by this section, a person who makes a voluntary disclosure 11-22 of a violation of an environmental or health and safety law is 11-23 immune from an administrative, civil, or criminal penalty for the 11-24 violation disclosed. 11-25 (b) A disclosure is voluntary only if: 11-26 (1) the disclosure was made promptly after knowledge 11-27 of the information disclosed is obtained by the person; 12-1 (2) the disclosure was made in writing by certified 12-2 mail to an agency that has regulatory authority with regard to the 12-3 violation disclosed; 12-4 (3) an investigation of the violation was not 12-5 initiated or the violation was not independently detected by an 12-6 agency with enforcement jurisdiction before the disclosure was made 12-7 using certified mail; 12-8 (4) the disclosure arises out of a voluntary 12-9 environmental or health and safety audit; 12-10 (5) the person who makes the disclosure initiates an 12-11 appropriate effort to achieve compliance, pursues that effort with 12-12 due diligence, and corrects the noncompliance within a reasonable 12-13 time; 12-14 (6) the person making the disclosure cooperates with 12-15 the appropriate agency in connection with an investigation of the 12-16 issues identified in the disclosure; and 12-17 (7) the violation did not result in injury to one or 12-18 more persons at the site or substantial off-site harm to persons, 12-19 property, or the environment. 12-20 (c) A disclosure is not voluntary for purposes of this 12-21 section if it is a report to a regulatory agency required solely by 12-22 a specific condition of an enforcement order or decree. 12-23 (d) The immunity established by Subsection (a) of this 12-24 section does not apply and an administrative, civil, or criminal 12-25 penalty may be imposed under applicable law if: 12-26 (1) the person who made the disclosure intentionally 12-27 or knowingly committed or was responsible within the meaning of 13-1 Section 7.02, Penal Code, for the commission of the disclosed 13-2 violation; 13-3 (2) the person who made the disclosure recklessly 13-4 committed or was responsible within the meaning of Section 7.02, 13-5 Penal Code, for the commission of the disclosed violation and the 13-6 violation resulted in substantial injury to one or more persons at 13-7 the site or off-site harm to persons, property, or the environment; 13-8 (3) the offense was committed intentionally or 13-9 knowingly by a member of the person's management or an agent of the 13-10 person and the person's policies or lack of prevention systems 13-11 contributed materially to the occurrence of the violation; or 13-12 (4) the offense was committed recklessly by a member 13-13 of the person's management or an agent of the person, the person's 13-14 policies or lack of prevention systems contributed materially to 13-15 the occurrence of the violation, and the violation resulted in 13-16 substantial injury to one or more persons at the site or off-site 13-17 harm to persons, property, or the environment. 13-18 (e) A penalty that is imposed under Subsection (d) of this 13-19 section should, to the extent appropriate, be mitigated by factors 13-20 such as: 13-21 (1) the voluntariness of the disclosure; 13-22 (2) efforts by the disclosing party to conduct 13-23 environmental or health and safety audits; 13-24 (3) remediation; 13-25 (4) cooperation with government officials 13-26 investigating the disclosed violation; or 13-27 (5) other relevant considerations. 14-1 (f) In a civil, administrative, or criminal enforcement 14-2 action brought against a person for a violation for which the 14-3 person claims to have made a voluntary disclosure, the person 14-4 claiming the immunity has the burden of establishing a prima facie 14-5 case that the disclosure was voluntary. After the person claiming 14-6 the immunity establishes a prima facie case of voluntary 14-7 disclosure, other than a case in which under Subsection (d) of this 14-8 section immunity does not apply, the enforcement authority has the 14-9 burden of rebutting the presumption by a preponderance of the 14-10 evidence or, in a criminal case, by proof beyond a reasonable 14-11 doubt. 14-12 (g) In order to receive immunity under this section, a 14-13 facility conducting an environmental or health and safety audit 14-14 under this Act must give notice to an appropriate regulatory agency 14-15 of the fact that it is planning to commence the audit. The notice 14-16 shall specify the facility or portion of the facility to be 14-17 audited, the anticipated time the audit will begin, and the general 14-18 scope of the audit. The notice may provide notification of more 14-19 than one scheduled environmental or health and safety audit at a 14-20 time. 14-21 (h) The immunity under this section does not apply if a 14-22 court or administrative law judge finds that the person claiming 14-23 the immunity has, after the effective date of this Act, 14-24 (1) repeatedly or continuously committed serious violations, and 14-25 (2) not attempted to bring the facility or operation into 14-26 compliance, so as to constitute a pattern of disregard of 14-27 environmental or health and safety laws. In order to be considered 15-1 a "pattern," the person must have committed a series of violations 15-2 that were due to separate and distinct events within a three-year 15-3 period at the same facility or operation. 15-4 (i) A violation that has been voluntarily disclosed and to 15-5 which immunity applies must be identified in a compliance history 15-6 report as being voluntarily disclosed. 15-7 SECTION 11. CIRCUMVENTION BY RULE PROHIBITED. A regulatory 15-8 agency may not adopt a rule or impose a condition that circumvents 15-9 the purpose of this Act. 15-10 SECTION 12. APPLICABILITY. The privilege created by this 15-11 Act applies to environmental or health and safety audits that are 15-12 conducted on or after the effective date of this Act. 15-13 SECTION 13. RELATIONSHIP TO OTHER RECOGNIZED PRIVILEGES. 15-14 This Act does not limit, waive, or abrogate the scope or nature of 15-15 any statutory or common law privilege, including the work product 15-16 doctrine and the attorney-client privilege. 15-17 SECTION 14. AMENDMENT. Subchapter C, Chapter 552, 15-18 Government Code, is amended by adding Section 552.124 to read as 15-19 follows: 15-20 Sec. 552.124. EXCEPTION: CERTAIN AUDITS. Any documents or 15-21 information privileged under the Texas Environmental, Health, and 15-22 Safety Audit Privilege Act are excepted from the requirements of 15-23 Section 552.021. 15-24 SECTION 15. EMERGENCY. The importance of this legislation 15-25 and the crowded condition of the calendars in both houses create an 15-26 emergency and an imperative public necessity that the 15-27 constitutional rule requiring bills to be read on three several 16-1 days in each house be suspended, and this rule is hereby suspended, 16-2 and that this Act take effect and be in force from and after its 16-3 passage, and it is so enacted.