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. 1-10 BE IT ENACTED BY THE LEGISLATURE OF THE STATE OF TEXAS: 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. 3-54 SECTION 7. EXCEPTION: DISCLOSURE REQUIRED BY COURT OR 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. 6-46 SECTION 13. RELATIONSHIP TO OTHER RECOGNIZED PRIVILEGES. 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 * * * * *