1-1  By:  Chisum, et al. (Senate Sponsor - Brown)          H.B. No. 2473
    1-2        (In the Senate - Received from the House April 27, 1995;
    1-3  May 1, 1995, read first time and referred to Committee on Natural
    1-4  Resources; May 5, 1995, reported favorably by the following vote:
    1-5  Yeas 8, Nays 0; May 5, 1995, sent to printer.)
    1-6                         A BILL TO BE ENTITLED
    1-7                                AN ACT
    1-8  relating to audits to determine compliance with certain laws,
    1-9  rules, and regulations; providing penalties.
   1-11        SECTION 1.  SHORT TITLE.  This Act may be cited as the Texas
   1-12  Environmental, Health, and Safety Audit Privilege Act.
   1-13        SECTION 2.  PURPOSE. The purpose of this Act is to encourage
   1-14  voluntary compliance with environmental and occupational health and
   1-15  safety laws.
   1-16        SECTION 3.  DEFINITIONS.  (a)  In this Act:
   1-17              (1)  "Audit report" means an audit report described by
   1-18  Section 4 of this Act.
   1-19              (2)  "Environmental or health and safety law" means:
   1-20                    (A)  a federal or state environmental or
   1-21  occupational health and safety law; or
   1-22                    (B)  a rule, regulation, or regional or local law
   1-23  adopted in conjunction with a law described by Paragraph (A) of
   1-24  this subdivision.
   1-25              (3)  "Environmental or health and safety audit" means a
   1-26  systematic voluntary evaluation, review, or assessment of
   1-27  compliance with environmental or health and safety laws or any
   1-28  permit issued under those laws conducted by an owner or operator,
   1-29  an employee of the owner or operator, or an independent contractor
   1-30  of:
   1-31                    (A)  a regulated facility or operation; or
   1-32                    (B)  an activity at a regulated facility or
   1-33  operation.
   1-34              (4)  "Owner or operator" means a person who owns or
   1-35  operates a regulated facility or operation.
   1-36              (5)  "Penalty" means an administrative, civil, or
   1-37  criminal sanction imposed by the state to punish a person for a
   1-38  violation of a statute or rule.  The term does not include a
   1-39  technical or remedial provision ordered by a regulatory authority.
   1-40              (6)  "Person" means an individual, corporation,
   1-41  business trust, partnership, association, and any other legal
   1-42  entity.
   1-43              (7)  "Regulated facility or operation" means a facility
   1-44  or operation that is regulated under an environmental or health and
   1-45  safety law.
   1-46        (b)  A person acts intentionally for purposes of this Act if
   1-47  the person acts intentionally within the meaning of Section 6.03,
   1-48  Penal Code.
   1-49        (c)  For purposes of this Act, a person acts knowingly, or
   1-50  with knowledge, with respect to the nature of the person's conduct
   1-51  when the person is aware of the person's physical acts.  A person
   1-52  acts knowingly, or with knowledge, with respect to the result of
   1-53  the person's conduct when the person is aware that the conduct will
   1-54  cause the result.
   1-55        (d)  A person acts recklessly or is reckless for purposes of
   1-56  this Act if the person acts recklessly or is reckless within the
   1-57  meaning of Section 6.03, Penal Code.
   1-58        (e)  To fully implement the privilege established by this
   1-59  Act, the term "environmental or health and safety law" shall be
   1-60  construed broadly.
   1-61        SECTION 4.  AUDIT REPORT.  (a)  An audit report is a report
   1-62  that includes each document and communication, other than those set
   1-63  forth in Section 8 of this Act, produced from an environmental or
   1-64  health and safety audit.
   1-65        (b)  General components that may be contained in a completed
   1-66  audit report include:
   1-67              (1)  a report prepared by an auditor, monitor, or
   1-68  similar person, which may include:
    2-1                    (A)  a description of the scope of the audit;
    2-2                    (B)  the information gained in the audit and
    2-3  findings, conclusions, and recommendations; and
    2-4                    (C)  exhibits and appendices;
    2-5              (2)  memoranda and documents analyzing all or a portion
    2-6  of the materials described by Subdivision (1) of this subsection or
    2-7  discussing implementation issues; and
    2-8              (3)  an implementation plan or tracking system to
    2-9  correct past noncompliance, improve current compliance, or prevent
   2-10  future noncompliance.
   2-11        (c)  The types of exhibits and appendices that may be
   2-12  contained in an audit report include supporting information that is
   2-13  collected or developed for the primary purpose of and in the course
   2-14  of an environmental or health and safety audit, including:
   2-15              (1)  interviews with current or former employees;
   2-16              (2)  field notes and records of observations;
   2-17              (3)  findings, opinions, suggestions, conclusions,
   2-18  guidance, notes, drafts, and memoranda;
   2-19              (4)  legal analyses;
   2-20              (5)  drawings;
   2-21              (6)  photographs;
   2-22              (7)  laboratory analyses and other analytical data;
   2-23              (8)  computer-generated or electronically recorded
   2-24  information;
   2-25              (9)  maps, charts, graphs, and surveys; and
   2-26              (10)  other communications associated with an
   2-27  environmental or health and safety audit.
   2-28        (d)  To facilitate identification, each document in an audit
   2-29  report should be labeled "COMPLIANCE REPORT:  PRIVILEGED DOCUMENT,"
   2-30  or labeled with words of similar import.  Failure to label a
   2-31  document under this section does not constitute a waiver of the
   2-32  audit privilege or create a presumption that the privilege does or
   2-33  does not apply.
   2-34        (e)  Once initiated, an audit shall be completed within a
   2-35  reasonable time not to exceed six months unless an extension is
   2-36  approved by the governmental entity with regulatory authority over
   2-37  the regulated facility or operation based on reasonable grounds.
   2-38        SECTION 5.  PRIVILEGE.  (a)  An audit report is privileged as
   2-39  provided in this section.
   2-40        (b)  Except as provided in Sections 6, 7, 8, and 9 of this
   2-41  Act, any part of an audit report is privileged and is not
   2-42  admissible as evidence or subject to discovery in:
   2-43              (1)  a civil action, whether legal or equitable;
   2-44              (2)  a criminal proceeding; or
   2-45              (3)  an administrative proceeding.
   2-46        (c)  A person, when called or subpoenaed as a witness, cannot
   2-47  be compelled to testify or produce a document related to an
   2-48  environmental or health and safety audit if:
   2-49              (1)  the testimony or document discloses any item
   2-50  listed in Section 4 of this Act that was made as part of the
   2-51  preparation of an environmental or health and safety audit report
   2-52  and that is addressed in a privileged part of an audit report; and
   2-53              (2)  for purposes of this subsection only, the person
   2-54  is:
   2-55                    (A)  a person who conducted any portion of the
   2-56  audit but did not personally observe the physical events;
   2-57                    (B)  a person to whom the audit results are
   2-58  disclosed under Section 6(b) of this Act; or
   2-59                    (C)  a custodian of the audit results.
   2-60        (d)  A person who conducts or participates in the preparation
   2-61  of an environmental or health and safety audit and who has actually
   2-62  observed physical events of violation, may testify about those
   2-63  events but may not be compelled to testify about or produce
   2-64  documents related to the preparation of or any privileged part of
   2-65  an environmental or health and safety audit or any item listed in
   2-66  Section 4 of this Act.
   2-67        (e)  An employee of a state agency may not request, review,
   2-68  or otherwise use an audit report during an agency inspection of a
   2-69  regulated facility or operation, or an activity of a regulated
   2-70  facility or operation.
    3-1        (f)  A party asserting the privilege described in this
    3-2  section has the burden of establishing the applicability of the
    3-3  privilege.
    3-4        SECTION 6.  EXCEPTION:  WAIVER.  (a)  The privilege described
    3-5  by Section 5 of this Act does not apply to the extent the privilege
    3-6  is expressly waived by the owner or operator who prepared the audit
    3-7  report or caused the report to be prepared.
    3-8        (b)  Disclosure of an audit report or any information
    3-9  generated by an environmental or health and safety audit does not
   3-10  waive the privilege established by Section 5 of this Act if the
   3-11  disclosure:
   3-12              (1)  is made to address or correct a matter raised by
   3-13  the environmental or health and safety audit and is made only to:
   3-14                    (A)  a person employed by the owner or operator,
   3-15  including temporary and contract employees;
   3-16                    (B)  a legal representative of the owner or
   3-17  operator;
   3-18                    (C)  an  officer or director of the regulated
   3-19  facility or operation or a partner of the owner or operator; or
   3-20                    (D)  an independent contractor retained by the
   3-21  owner or operator;
   3-22              (2)  is made under the terms of a confidentiality
   3-23  agreement between the person for whom the audit report was prepared
   3-24  or the owner or operator of the audited facility or operation and:
   3-25                    (A)  a partner or potential partner of the owner
   3-26  or operator of the facility or operation;
   3-27                    (B)  a transferee or potential transferee of the
   3-28  facility or operation;
   3-29                    (C)  a lender or potential lender for the
   3-30  facility or operation;
   3-31                    (D)  a governmental official or a state or
   3-32  federal agency; or
   3-33                    (E)  a person or entity engaged in the business
   3-34  of insuring, underwriting, or indemnifying the facility or
   3-35  operation; or
   3-36              (3)  is made under a claim of confidentiality to a
   3-37  governmental official or agency by the person for whom the audit
   3-38  report was prepared or by the owner or operator.
   3-39        (c)  A party to a confidentiality agreement described in
   3-40  Subsection (b)(2) of this section who violates that agreement is
   3-41  liable for damages caused by the disclosure and for any other
   3-42  penalties stipulated in the confidentiality agreement.
   3-43        (d)  Information that is disclosed under Subsection (b)(3) of
   3-44  this section is confidential and is not subject to disclosure under
   3-45  Chapter 552, Government Code. A public entity, public employee, or
   3-46  public official who discloses information in violation of this
   3-47  subsection commits an offense.  An offense under this subsection is
   3-48  a Class B misdemeanor.  It is an affirmative defense to the
   3-49  clerical dissemination of a privileged audit report that the report
   3-50  was not clearly labeled "COMPLIANCE REPORT:  PRIVILEGED DOCUMENT"
   3-51  or words of similar import.  The lack of labeling may not be raised
   3-52  as a defense if the entity, employee, or official knew or had
   3-53  reason to know that the document was a privileged audit report.
   3-55  ADMINISTRATIVE HEARINGS OFFICIAL.  (a)   A court or administrative
   3-56  hearings official with competent jurisdiction may require
   3-57  disclosure of a portion of an audit report in a civil, criminal, or
   3-58  administrative proceeding if the court or administrative hearings
   3-59  official determines, after an in camera review consistent with the
   3-60  appropriate rules of procedure, that:
   3-61              (1)  the privilege is asserted for a fraudulent
   3-62  purpose;
   3-63              (2)  the portion of the audit report is not subject to
   3-64  the privilege under Section 8 of this Act; or
   3-65              (3)  the portion of the audit report shows evidence of
   3-66  noncompliance with an environmental or health and safety law and
   3-67  appropriate efforts to achieve compliance with the law were not
   3-68  promptly initiated and pursued with reasonable diligence after
   3-69  discovery of noncompliance.
   3-70        (b)  A party seeking disclosure under this section has the
    4-1  burden of proving that Subsection (a)(1), (2), or (3) of this
    4-2  section applies.
    4-3        (c)  Notwithstanding Chapter 2001, Government Code, a
    4-4  decision of an administrative hearings official under Subsection
    4-5  (a)(1), (2), or (3) of this section is directly appealable to a
    4-6  court of competent jurisdiction without disclosure of the audit
    4-7  report to any person unless so ordered by the court.
    4-8        (d)  A person claiming the privilege is subject to sanctions
    4-9  as provided by Rule 215 of the Texas Rules of Civil Procedure if
   4-10  the court finds that the person intentionally or knowingly claimed
   4-11  the privilege for unprotected information as provided in Section 8
   4-12  of this Act.
   4-13        (e)  A determination of a court under this section is subject
   4-14  to interlocutory appeal to an appropriate appellate court.
   4-15        SECTION 8.  NONPRIVILEGED MATERIALS.  (a)  The privilege
   4-16  described in this Act does not apply to:
   4-17              (1)  a document, communication, datum, or report or
   4-18  other information required by a regulatory agency to be collected,
   4-19  developed, maintained, or reported under a federal or state
   4-20  environmental or health and safety law;
   4-21              (2)  information obtained by observation, sampling, or
   4-22  monitoring by a regulatory agency; or
   4-23              (3)  information obtained from a source not involved in
   4-24  the preparation of the environmental or health and safety audit
   4-25  report.
   4-26        (b)  This section does not limit the right of a person to
   4-27  agree to conduct and disclose an audit report.
   4-28        SECTION 9.  COURT REVIEW AND DISCLOSURE.  (a)  If there is
   4-29  reasonable cause to believe a criminal offense has been committed
   4-30  under an environmental or health and safety law, the attorney
   4-31  representing the state may obtain an audit report for which a
   4-32  privilege is asserted under this Act under a search warrant,
   4-33  criminal subpoena, or discovery as allowed by the Code of Criminal
   4-34  Procedure and the Texas Rules of Criminal Procedure.
   4-35        (b)  On receipt of the audit report, the attorney
   4-36  representing the state shall seal the report and may not review or
   4-37  disclose the contents of the report.
   4-38        (c)  Not later than the 30th day after the date an audit
   4-39  report is received under Subsection (a), the owner or operator who
   4-40  prepared the report or for whom the report was prepared may file
   4-41  with a court of competent jurisdiction a petition requesting an in
   4-42  camera review to determine whether all or a portion of the report
   4-43  is privileged or is subject to disclosure under this Act.  An owner
   4-44  or operator who fails to file a petition under this subsection
   4-45  within the period specified by this subsection waives the
   4-46  privilege.
   4-47        (d)  On the filing of a petition under Subsection (c) of this
   4-48  section, the court shall issue an order that:
   4-49              (1)  schedules the in camera review for a date not
   4-50  later than the 45th day after the date the petition is filed; and
   4-51              (2)  authorizes the attorney representing the state to
   4-52  remove the seal from the report to review the report, subject to
   4-53  appropriate limitations on distribution or disclosure of the report
   4-54  that are specified in the order to protect against unnecessary
   4-55  disclosure.
   4-56        (e)  The attorney representing the state may consult with
   4-57  enforcement agencies regarding the contents of the report as
   4-58  necessary to prepare for the in camera review.
   4-59        (f)  Information used in preparation for the in camera review
   4-60  under Subsection (e) of this section:
   4-61              (1)  is confidential;
   4-62              (2)  may not be used in any investigation or legal
   4-63  proceeding; and
   4-64              (3)  is not subject to disclosure under Chapter 552,
   4-65  Government Code.
   4-66        (g)  Subsection (f) of this section does not apply to
   4-67  information a court finds to be subject to disclosure.
   4-68        (h)  On the motion of a party, a court or the appropriate
   4-69  administrative official shall suppress evidence offered in any
   4-70  civil, criminal, or administrative proceeding that arises or is
    5-1  derived from review, disclosure, or use of information obtained
    5-2  under this section if the review, disclosure, or use is not
    5-3  authorized under this section.  A party allegedly failing to comply
    5-4  with this section has the burden of proving that the evidence
    5-5  offered did not arise and was not derived from the unauthorized
    5-6  review, disclosure, or use.
    5-7        (i)  The parties may stipulate to entry of an order directing
    5-8  that specific information contained in an audit report is or is not
    5-9  subject to the privilege.
   5-10        (j)  A court may compel the disclosure of only those portions
   5-11  of an audit report relevant to issues in dispute in the proceeding.
   5-12        (k)  A court may find a person who discloses information in
   5-13  violation of this section in contempt of court and may order other
   5-14  appropriate relief.
   5-15        SECTION 10.  VOLUNTARY DISCLOSURE; IMMUNITY.  (a)  Except as
   5-16  provided by this section, a person who makes a voluntary disclosure
   5-17  of a violation of an environmental or health and safety law is
   5-18  immune from an administrative, civil, or criminal penalty for the
   5-19  violation disclosed.
   5-20        (b)  A disclosure is voluntary only if:
   5-21              (1)  the disclosure was made promptly after knowledge
   5-22  of the information disclosed is obtained by the person;
   5-23              (2)  the disclosure was made in writing by certified
   5-24  mail to an agency that has regulatory authority with regard to the
   5-25  violation disclosed;
   5-26              (3)  an investigation of the violation was not
   5-27  initiated or the violation was not independently detected by an
   5-28  agency with enforcement jurisdiction before the disclosure was made
   5-29  using certified mail;
   5-30              (4)  the disclosure arises out of a voluntary
   5-31  environmental or health and safety audit;
   5-32              (5)  the person who makes the disclosure initiates an
   5-33  appropriate effort to achieve compliance, pursues that effort with
   5-34  due diligence, and corrects the noncompliance within a reasonable
   5-35  time;
   5-36              (6)  the person making the disclosure cooperates with
   5-37  the appropriate agency in connection with an investigation of the
   5-38  issues identified in the disclosure; and
   5-39              (7)  the violation did not result in injury to one or
   5-40  more persons at the site or substantial off-site harm to persons,
   5-41  property, or the environment.
   5-42        (c)  A disclosure is not voluntary for purposes of this
   5-43  section if it is a report to a regulatory agency required solely by
   5-44  a specific condition of an enforcement order or decree.
   5-45        (d)  The immunity established by Subsection (a) of this
   5-46  section does not apply and an administrative, civil, or criminal
   5-47  penalty may be imposed under applicable law if:
   5-48              (1)  the person who made the disclosure intentionally
   5-49  or knowingly committed or was responsible within the meaning of
   5-50  Section 7.02, Penal Code, for the commission of the disclosed
   5-51  violation;
   5-52              (2)  the person who made the disclosure recklessly
   5-53  committed or was responsible within the meaning of Section 7.02,
   5-54  Penal Code, for the commission of the disclosed violation and the
   5-55  violation resulted in substantial injury to one or more persons at
   5-56  the site or off-site harm to persons, property, or the environment;
   5-57              (3)  the offense was committed intentionally or
   5-58  knowingly by a member of the person's management or an agent of the
   5-59  person and the person's policies or lack of prevention systems
   5-60  contributed materially to the occurrence of the violation; or
   5-61              (4)  the offense was committed recklessly by a member
   5-62  of the person's management or an agent of the person, the person's
   5-63  policies or lack of prevention systems contributed materially to
   5-64  the occurrence of the violation, and the violation resulted in
   5-65  substantial injury to one or more persons at the site or off-site
   5-66  harm to persons, property, or the environment.
   5-67        (e)  A penalty that is imposed under Subsection (d) of this
   5-68  section should, to the extent appropriate, be mitigated by factors
   5-69  such as:
   5-70              (1)  the voluntariness of the disclosure;
    6-1              (2)  efforts by the disclosing party to conduct
    6-2  environmental or health and safety audits;
    6-3              (3)  remediation;
    6-4              (4)  cooperation with government officials
    6-5  investigating the disclosed violation; or
    6-6              (5)  other relevant considerations.
    6-7        (f)  In a civil, administrative, or criminal enforcement
    6-8  action brought against a person for a violation for which the
    6-9  person claims to have made a voluntary disclosure, the person
   6-10  claiming the immunity has the burden of establishing a prima facie
   6-11  case that the disclosure was voluntary.  After the person claiming
   6-12  the immunity establishes a prima facie case of voluntary
   6-13  disclosure, other than a case in which under Subsection (d) of this
   6-14  section immunity does not apply, the enforcement authority has the
   6-15  burden of rebutting the presumption by a preponderance of the
   6-16  evidence or, in a criminal case, by proof beyond a reasonable
   6-17  doubt.
   6-18        (g)  In order to receive immunity under this section, a
   6-19  facility conducting an environmental or health and safety audit
   6-20  under this Act must give notice to an appropriate regulatory agency
   6-21  of the fact that it is planning to commence the audit.  The notice
   6-22  shall specify the facility or portion of the facility to be
   6-23  audited, the anticipated time the audit will begin, and the general
   6-24  scope of the audit.  The notice may provide notification of more
   6-25  than one scheduled environmental or health and safety audit at a
   6-26  time.
   6-27        (h)  The immunity under this section does not apply if a
   6-28  court or administrative law judge finds that the person claiming
   6-29  the immunity has, after the effective date of this Act,
   6-30  (1)  repeatedly or continuously committed serious violations, and
   6-31  (2)  not attempted to bring the facility or operation into
   6-32  compliance, so as to constitute a pattern of disregard of
   6-33  environmental or health and safety laws.  In order to be considered
   6-34  a "pattern," the person must have committed a series of violations
   6-35  that were due to separate and distinct events within a three-year
   6-36  period at the same facility or operation.
   6-37        (i)  A violation that has been voluntarily disclosed and to
   6-38  which immunity applies must be identified in a compliance history
   6-39  report as being voluntarily disclosed.
   6-40        SECTION 11.  CIRCUMVENTION BY RULE PROHIBITED.  A regulatory
   6-41  agency may not adopt a rule or impose a condition that circumvents
   6-42  the purpose of this Act.
   6-43        SECTION 12.  APPLICABILITY.  The privilege created by this
   6-44  Act applies to environmental or health and safety audits that are
   6-45  conducted on or after the effective date of this Act.
   6-47  This Act does not limit, waive, or abrogate the scope or nature of
   6-48  any statutory or common law privilege, including the work product
   6-49  doctrine and the attorney-client privilege.
   6-50        SECTION 14.  AMENDMENT.  Subchapter C, Chapter 552,
   6-51  Government Code, is amended by adding Section 552.124 to read as
   6-52  follows:
   6-53        Sec. 552.124.  EXCEPTION:  CERTAIN AUDITS.  Any documents or
   6-54  information privileged under the Texas Environmental, Health, and
   6-55  Safety Audit Privilege Act are excepted from the requirements of
   6-56  Section 552.021.
   6-57        SECTION 15.  EMERGENCY.  The importance of this legislation
   6-58  and the crowded condition of the calendars in both houses create an
   6-59  emergency and an imperative public necessity that the
   6-60  constitutional rule requiring bills to be read on three several
   6-61  days in each house be suspended, and this rule is hereby suspended,
   6-62  and that this Act take effect and be in force from and after its
   6-63  passage, and it is so enacted.
   6-64                               * * * * *