Private employees have fiduciary duty to public

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The environmental manager of a private corporation who violated the Clean Water Act can have his sentence enhanced for abusing the public trust, a divided Seventh Circuit held on April 23.

Between 1994 and 1997, Ronald Snook was the Environmental Manager at Clark Refining & Marketing, Inc., a petroleum refinery in Illinois. Prior to being Environmental Manager, Snook had worked at Clark since 1989 as an “Environmental Specialist.” Prior to that he was a partner of an environmental consulting firm.

As Environmental Manager at Clark, two of his duties included ensuring the refinery’s compliance with environmental regulations and overseeing its wastewater treatment system. Each day, Clark discharged on average over a million gallons of processed wastewater into a sewer system that flowed into a water treatment plant of the Metropolitan Water Reclamation District of Greater Chicago (District).

The District’s ordinances prohibit Clark from discharging water with (1) a concentration of pollutants such as fats, oils, and greases of greater than 100 milligrams per liter or (2) a pH level lower than 5 or greater than 10. The ordinance requires dischargers such as Clark to self-monitor their compliance and submit reports documenting compliance semiannually to the District.

If the District finds that wastewater violates required limits, it issues an order to cease and desist, and dischargers are required to submit reports documenting that their wastewater is back in compliance.

Further, for both types of reports, dischargers must submit all of their self-monitoring data even if it was taken in addition to the minimum requirements, and dischargers must notify the District within 24 hours whenever they become aware of any violations.

Snook was indicted in Illinois federal court for conspiring with Elva Carusiello, another Clark employee, and another company that Clark hired to test its wastewater, to selectively report testing results to the District and for failing to report violations.

Snook was found guilty of six counts in all, and was given concurrent terms of 21 months imprisonment, concurrent terms of two years supervised release, a $1,000 fine, and $600 in special assessments.

At sentencing, his offense level was increased two-levels for abusing a position of trust, pursuant to U.S.S.G. 3B1.3. Snook appealed his convictions and sentence, but the Seventh Circuit affirmed in a decision written by Judge Ilana D. Rovner, and joined by Judge Terence T. Evans. Judge John L. Coffey dissented on the sentencing issue.

Position of Trust

The court held that it was proper to increase the sentence for abusing a position of trust, because Snook held such a position with respect to the District and the public. The increase is appropriate when a defendant occupies a position of trust and abuses that trust to significantly facilitate a crime.

Snook argued that he only occupied a position of trust with respect to Clark, not the District or the public, but the court disagreed.

The court reasoned, “The Clean Water Act is public-welfare legislation and the victims of violations are the public. United States v. Technic Servs., Inc., 314 F.3d 1031, 1049 (9th Cir. 2002). As Environmental Manager at Clark, Snook was given discretion to devise Clark’s wastewater treatment and testing systems, as well as to decide when to conduct such testing. And although the District did periodically conduct its own testing, it was for the most part dependent on the data that Clark reported.”

The court noted that, for over three years, Clark’s wastewater had numerous violations that went undetected because Snook, in his unique position as Environmental Manager, did not report them.

The court distinguished other self-reporting situations, such as taxpayers, because the regulations apply to matters that directly and significantly affect the public’s health and safety. The court cited numerous cases from other jurisdictions: United States v. Gonzalez-Alvarez, 277 F.3d 73, 81-82 (1st Cir. 2002)(imposing an abuse-of-trust increase on a dairy farmer for not complying with regulations); United States v. White, 270 F.3d 356, 372-73 (6th Cir. 2001)(employee at water-treatment plant); and United States v. Turner, 102 F.3d 1350, 1360 (4th Cir. 1996)(owners and operators of coal mine).

The court concluded, “Given the responsibility and discretion given to Snook in his position as Environmental Manager in complying with the District’s regulations, and his abuse of that position, the district court did not err in applying the sentencing increase.”

The Dissent

Judge Coffey dissented, concluding that Snook did not occupy a position of trust vis-a-vis the public.

Coffey noted, “As set forth under Section 3B1.3, the ‘abuse of trust’ enhancement applies only where a defendant possessed the requisite level of discretion, and, further, where that discretion was ‘entrusted to the defendant by the victim. (emphasis in original).’”

Coffey concluded, “[t]he guideline enhancement requires more than a mere showing that the victim had confidence in the defendant. Something more akin to a fiduciary function is required (quoting U.S. v. Brunson, 54 F.3d 673, 678 (10th Cir. 1995)).”

Coffey added, “the victim must have placed the defendant in a position where he or she is performing a ‘fiduciary function,’ or exercising discretion over the victim’s affairs. Indeed, it is worth noting that ‘every example of an abuse of trust in the Commentary … involves a victim entrusting an agent or employee with discretion (cites omitted).’”

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Applying those principles, Coffey concluded, “it is clear that Snook did not occupy a ‘position of trust’ vis-a-vis the public, for the simple reason that he did not serve in a fiduciary (or even quasi-fiduciary) capacity with respect to his victim, the public. One cannot be a fiduciary without first being placed in that position by the claimed beneficiary of the relationship. The public did not place Snook in the position of Environmental Manager, and thus ‘entrust’ him to comply with the Clean Water Act’s reporting requirements. Snook was not a government employee, and thus could not be considered or classified as a public servant by nature of his employment. Nor was he even a private employee subject to professional licensing requirements, and therefore entrusted to abide by certain standards in order to maintain the public’s trust in his profession (such as a physician or an attorney). Rather, Snook was a private employee, selected by Clark, and not the public, to monitor the corporation’s compliance with the Clean Water Act. And it was Clark, and not the public, who reposed its confidence in Snook such that a fiduciary relationship may have been created. To be sure, the public may have ‘trusted’ Snook to obey applicable environmental regulations, as it ‘trusts’ any citizen to abide by any law protecting matters in the public interest (such as drunk driving laws, speeding laws, reckless driving laws, antitheft laws, and environmental protection laws, etc.). But the public did not entrust Snook (in the sense of placing a fiduciary obligation on Snook) with the duty of protecting its health and welfare interests in the environment; when Clark selected Snook to serve as its Environmental Manager, he did not take an oath of office or swear to abide by the provisions of the Clean Water Act and protect the public from pollutants in its water system. Thus Snook was certainly not acting in the capacity of an agent or employee of the general public.”

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David Ziemer can be reached by email.