______________________________
)
In the Matter of APPLIED )
COMPANIES, INC., )
) Ref. No. 95-161-CM-HQ
)
)
Respondent. )
______________________________)
ACTION ON APPEAL
Background
On May 22, 1996, the Chief Counsel, Research and Special
Programs Administration (RSPA), U.S. Department of Transportation
(DOT), issued an Order to Applied Companies, Inc. (Respondent)
assessing a penalty in the amount of $3,920 for two violations
of the Hazardous Materials Regulations (HMR), 49 C.F.R. Parts
171-180.
The Order, which is incorporated herein by reference, found
that Respondent knowingly represented, marked, certified,
offered, and sold compressed gas cylinders as meeting the
requirements of the HMR when hydrostatic testing had been
performed on equipment having a pressure gauge that was not
capable of being read within one percent of test pressure
(violation No. 1), and without training its "hazmat"
employees or creating and retaining training records (violation
No. 2), in violation of 49 C.F.R. §§ 171.2(c), 172.702,
172.704, and 178.36-14(a). The Order modified the $5,320 civil
penalty originally proposed in the July 12, 1995 Notice of
Probable Violation (Notice).
By letter dated June 10, 1996, as supplemented by its June
21, 1996 letter, Respondent submitted a timely appeal of the
Order.
Discussion
According to records observed during RSPA’s March 1995
random inspection, on February 6, 1995, an independent inspection
agency (IIA) performed a hydrostatic test (on Respondent’s
behalf) on a lot of DOT specification 3A1800 compressed gas
cylinders manufactured by Respondent. See Exhibit 4
to RSPA’s inspection/investigation report. This hydrostatic
testing was performed at 3,000 psi (or 5/3 of service pressure).
The IIA told RSPA’s inspector that the hydrostatic testing
was performed on equipment having a pressure gauge with a
range of 0 - 30,000 psi, and incremental markings of 200 psi.
Exhibits 3 and 5.
With interpolation to the mid-point between incremental markings,
or graduations, the pressure gauge used for hydrostatic testing
of this lot of cylinders can be read only to an accuracy of
100 psi. However, the HMR require use of a pressure gauge
that can be read to one percent of test pressure or, in this
case, 30 psi. 49 C.F.R. § 178.36-14.
Within one month of RSPA’s inspection, Respondent wrote
RSPA’s inspector and stated that:
This discrepancy was one of mutual responsibility
of Applied Companies personnel and third party inspection
personnel. We have calibrated gauges that meet the one percent
accuracy requirement for all applicable pressure ranges, which
makes this over[sight] all the more frustrating.
. . . Applied has the responsibility to monitor and adhere
to the specification requirements regardless of how the
over[sight] occurred. We have collaborated with our third
party inspection service (Arrowhead) and have put additional
controls in place to preclude this discrepancy from occurring
again.
In the same letter, Respondent acknowledged that its training
of hazardous materials employees "has always been 'on
the job' training. . . . [W]e have not put a formal certification
program in place up until this point in time." It stated
that it had now "formalized a training and certification
program for those employees who handle hazmat."
Based on the corrective actions outlined in this letter,
and supported by the accompanying documentation, the penalty
proposed in the Notice for these two violations of the HMR
was reduced by 20% from the amount that would have been proposed
in the absence of these corrective actions. In the Order,
the Chief Counsel further reduced the proposed penalty after
giving additional consideration to Respondent’s corrective
actions and its financial condition.
In its appeal, Respondent first disputes the statement in
the Order that it "manufactures DOT specification cylinders."
The fact that Respondent also manufactures military (MILSTRIP)
cylinders is irrelevant. A commendatory March 1996 letter
from the Department of the Navy, which Respondent provided,
appears to confirm the effectiveness of Respondent’s
corrective actions and is consistent with Respondent’s
own characterization of the first violation as an oversight.
This does not, however, warrant setting aside the finding
of violation No. 1 or the civil penalty assessed for both
violations.
Respondent then argues that its gauges "are readable
in 1 percentgradients and are 'accurate'" as required
by the HMR. Respondent notes that its 10,000 psi gauge is
readable in 100 psi incremental markings, and its 5,000 gauge
is readable in 50 psi markings. Respondent states that it
follows the procedures for calibration outlined in Compressed
Gas Association (CGA) Pamphlet C-1, "Methods for Hydrostatic
Testing of Compressed Gas Cylinders," and states that
"the graduations on the face of the gauge itself literally
have an insignificant role" in the accuracy of the hydrostatic
test. As the inspection/investigation report makes clear,
however, violation No. 1 is based solely on Respondent’s
use of a 30,000 psi pressure gauge with 200 psi incremental
markings. There is no dispute that this gauge will not permit
pressure readings to within 30 psi, or one percent of 3,000
psi test pressure. There is no issue whether it is better
to use a 5,000 psi gauge or a 10,000 psi pressure gauge, separate
from whether the incremental markings permit reading test
pressure to within one percent. In this case, Respondent used
a pressure gauge that could not be read to an accuracy of
one percent of test pressure, and the discussion of other
matters in parts I.B. and I.C. of Respondent’s June 21
letter is beside the point.
With respect to violation No. 2, concerning the failure to
train its "hazmat" employees, Respondent provided
an extract from its Employees Injury and Illness Prevention
Program "as evidence of our safety program." However,
this does not constitute the required "hazmat" training
or reflect that the required training records were created
or retained. Respondent notes that it is now in compliance
with the HMR training requirement, and refers to its "Applied
Companies Hazmat Training Manual" which it states "was
approved by DOT." The latter understanding is incorrect,
as DOT does not "approve" any training program or
materials; nonetheless, RSPA considers that Respondent has
taken actions to correct violation No. 2, as reflected in
the civil penalty reduction already allowed.
Respondent’s appeal also asserts that the Order incorrectly
characterizes Respondent’s position of financial hardship
arising out of the January 17, 1995 earthquake that damaged
two of its other facilities (besides the facility inspected
by RSPA in March 1995). Respondent states that the "Federal
Emergency Management Act" allows the government to set
aside "compliance with federal regulations such as federal
contract terms, DOT contract delivery requirements, as well
as certain provisions of the UCC." However, Respondent
does not show any basis for its ignoring, or RSPA’s excusing,
these two serious violations of safety regulations. The financial
statements previously submitted byRespondent, as of June 30,
1995, indicate that five months after the earthquake Respondent
had substantial net worth and significant current assets in
excess of current liabilities. This information sustains the
Chief Counsel’s conclusion that Respondent is able to
pay a $3,920 penalty. Respondent’s somewhat limited cash
position has already been considered by allowing payment of
this penalty in ten monthly installments of $392 each.
Respondent’s appeal restates its earlier arguments that
RSPA should issue a warning letter rather than assessing a
civil penalty for these violations. However, Respondent does
not provide any new information that would warrant changing
the Chief Counsel’s conclusion that a civil penalty is
appropriate in this case. The fact that RSPA first published
its civil penalty guidelines after these violations occurred
(although before Respondent was inspected) is irrelevant.
These guidelines have been used for many years and "are
merely a general statement of agency policy," subject
to revision at any time. Indeed, the version of the penalty
guidelines that was published in the Federal Register
on March 6, 1995, was actually being used by RSPA on the date
of the violations. Respondent has not shown any prejudice
from RSPA’s use of its penalty guidelines.
There is also no merit to Respondent’s claim that RSPA’s
unannounced inspection was improper. As discussed in the Order,
RSPA is authorized to inspect, "at a reasonable time
and in a reasonable way, records and property related to .
. . the transportation of hazardous material in commerce."
49 U.S.C. § 5121(c)(1). There is no requirement for RSPA
to provide advance notification or obtain Respondent’s
permission to conduct an inspection.
The final issue raised in Respondent’s appeal concerns
the finding that Respondent "knowingly" committed
these two violations of the HMR. Respondent reiterates that
the 10,000 psi pressure gauge (with 100 psi interval markings)
observed by RSPA’s inspector for testing a 3,000 psi
cylinder at 5,000 psi "met the requirement of 49 CFR
178.36-14." However, violation No. 1 was not based on
activity during the March 1995 inspection, but rather the
hydrostatic testing of 1,800 psi cylinders on February 6,
1995, by use of the 30,000 psi gauge with 200 psi interval
markings. As explained in the Notice, "acting knowingly
means acting or failing to act while
(1) having actual knowledge of the facts giving rise to the
violation, or (2) having such knowledge as a reasonable person
acting in the circumstances and exercising due care would
have had." 49 C.F.R. § 107.299. There is no evidence
that, when the IIA performed hydrostatic testing on Respondent’s
behalf on February 6, 1995, Respondent did not know all the
facts giving rise to violation No. 1: i.e., the IIA
tested these 1,800 psi cylinders on equipment with a pressure
gauge having 200 psi interval markings, which are insufficient
to determine whether the test pressure is accurate to within
one percent, or 30 psi.
Respondent’s appeal also suggests that RSPA publish
"written guidelines . . . to eliminate any interpretation
of general provisions of 49 CFR by DOT inspectors," with
"size standards to accommodate both large as well as
small businesses." If Respondent means that the HMR should
apply differently to large and small businesses, RSPA cannot
agree. On the other hand, if Respondent is seeking additional
guidance with regard to the requirement that a pressure gauge
used for conducting hydrostatic testing "must permit
reading to accuracy of 1 percent" of test pressure, CGA
Pamphlet C-1 (which Respondent holds) contains this information.
Figure 2 in this pamphlet illustrates a typical water jacket
test apparatus and notes the requirement that the pressure
gauge "[m]ust be capable of being read to ± 1% accuracy."
The notes to Figure 2 also list "[s]uggested increments
for corresponding test pressure," and indicate that,
for test pressures between 3,000 and 4,100 psi, 50 psi increments
are appropriate. The requirement to use a pressure gauge with
incremental markings that permit reading to an accuracy of
1% of test pressure is also explained in a new training video,
on hydrostatic testing of compressed gas cylinders, being
prepared by RSPA for distribution to all approved cylinder
retesters. In any event, there is no inspector’s interpretation
involved in violation No. 1, which Respondent’s April
15, 1995 letter has acknowledged as an oversight and a discrepancy.
Findings
I have determined that there is not sufficient information
to set aside the findings of violation in the Chief Counsel’s
Order or to warrant mitigation of the civil penalty assessed
in that Order. I find that a civil penalty of $3,920 is appropriate
in light of the nature and circumstances of these violations,
their extent and gravity, Respondent's culpability, Respondent's
lack of prior violations, Respondent's ability to pay, the
effect of a civil penalty on Respondent's ability to continue
in business, and all other relevant factors.
Therefore, the Order of May 22, 1996, is affirmed as being
substantiated in the record and as being in accordance with
the assessment criteria prescribed in 49 C.F.R. § 107.331.
The $3,920 civil penalty assessed in that Order is payable
in ten monthly installments of $392, with the first payment
due within 30 days of the date of issuance of this Action
on Appeal and each succeeding payment due every 30 days thereafter
until the entire amount is paid. If Respondent defaults on
any payment of this payment schedule, the entire amount of
the remaining civil penalty shall, without further notice,
become immediately due and payable as of the date that the
first installment is due.
Form of Payment
Each installment payment must be made in one of the following
two ways:
- by wire transfer, through the Federal Reserve Communications
System (Fedwire), to the account of the U.S. Treasury. Detailed
instructions are contained in the enclosure to this Order.
Questions concerning wire transfers should be directed to:
Financial Operations Division (AMZ-320), Federal Aviation
Administration, Mike Monroney Aeronautical Center, P.O.
Box 25770, Oklahoma City, OK 73125 (Telephone 405-954-4719).
- by sending a certified check or money order (containing
the Ref. No. of this case) payable to "U.S. Department
of Transportation" to the Financial Operations Division
(AMZ-320), Federal Aviation Administration, Mike Monroney
Aeronautical Center, P.O. Box 25770, Oklahoma City, OK 73125.
If the $3,920 civil penalty is paid in accordance with the
terms of this Action on Appeal, no interest will be charged.
If, however, the civil penalty is not paid in accordance with
the terms of this Action on Appeal, the Financial Operations
Division of the Federal Aviation Administration will assess
interest and administrative charges, and it will initiate
collection activities on the debt and those charges. Interest
on the debt will accrue from the date of issuance of this
Action on Appeal at the applicable rate in accordance with
31 U.S.C. § 3717, 4 C.F.R. § 102.13, and 49 C.F.R.
§ 89.23. Pursuant to those same authorities, a late-payment
penalty of six percent (6%) per year will be charged on any
portion of the debt that is more than 90 days past due. This
penalty will accrue from the date this Action on Appeal is
received.
Final Administrative Action
This decision on appeal constitutes the final administrative
action in this proceeding.
Dr. D.K. Sharma
Administrator
Date Issued: November 4, 1996 Original to:
Mr. Kent L. Fortin
Chief Financial Officer
Applied Companies, Inc.
29020 Avenue Stanford
Valencia, CA 91344-1105
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