Elfarissi – Spring 2022 – MJEAL

Walmart’s Liabilities Under the HWCL: A California Case Study

Rita Elfarisi

In December 2021, the California Attorney General along with approximately a dozen district attorneys filed a lawsuit against Walmart.[1] The complaint alleges Walmart dumped nearly 80 tons of hazardous waste from more than 300 stores in California landfills throughout the state every year over the past five years.[2] More specifically, the complaint alleges Walmart violated several provisions of California Health and Safety Code section 25189, among other things.[3] The statute subjects individuals and entities who do not comply with the Hazardous Waste and Control Law (“HWCL”) to civil penalties.[4] The HWCL is a statutory framework that mandates “cradle to grave” requirements for the management and disposal of hazardous waste and establishes penalty schemes for violations.[5] Effective January 1, 2018, the sections of the Code that the State of California alleges Walmart has violated were amended, raising the maximum of the applicable civil penalty from $25,000 to $70,000 for each violation of a separate provision or, for continuing violations, for each that the violation continues.[6]

This is not the first time the State of California has sued Walmart for improper handling of hazardous waste.[7] In 2010, Walmart entered a $27.6 million settlement with the State of California to end a lawsuit alleging that it was improperly stored, handled, and dumped hazardous waste at stores throughout California, one of the largest settlements of its kind in the United States.[8] The settlement ended a five-year investigation involving more than twenty prosecutors and thirty-two environmental health agencies into Walmart’s disposal of hazardous waste.[9] The investigation began in 2005 when an off-duty employee from the San Diego County Department of Environmental Health observed a Walmart employee pouring bleach down a drain.[10] The investigation uncovered violations at over 250 Walmart and Sam’s Club stores, distribution centers, and storage facilities in the state.[11]

The investigation was just one more public relations issue for Walmart in 2005. That same year, a McKinsey & Company study found that between two and eight percent of consumers had stopped shopping at Walmart because of the company’s competitive practices and labor policies.[12] A poll conducted by Zogby International in 2005 found that thirty-eight percent of Americans polled had an unfavorable view of Walmart.[13] In what seemed to be an attempt to revive its reputation, Walmart’s CEO unveiled a sweeping business sustainability strategy that same year to reduce the company’s environmental footprint.[14] While it is unlikely that the California investigation was the sole motivator behind the implementation of this strategy, it surely serves as an incentive for Walmart to mitigate further negative press that could tarnish its reputation.

Walmart directly responded to the investigation by cooperating with the State of California to develop a comprehensive hazardous waste plan.[15] Some of Walmart’s internal compliance measures include hiring implemented environmental compliance staff at management levels, developing and implementing upwards of fifty new environmental compliance standard operating procedures for its stores and clubs, and implementing a hazardous waste management system.[16]

Walmart’s commitment to working with the State of California to remedy its wrongdoing signals that the investigation and subsequent lawsuits may have had a deterrent effect on the company. However, it is more likely that reputational damage, rather than financial repercussions, motivated Walmart’s cooperation with the investigation. While the settlement of $27.6 million was one of the largest of its kind at the time, it represented only about two-tenths of one percent of Walmart’s $14.41 billion profit from continuing operations in 2009.[17]

While the relevant revised sections of the HWCL involve a sizeable increase in the monetary civil penalties that violators face, it is unlikely that fines alone will deter Walmart and similarly sized companies from violating California’s Health and Safety Code.[18] Some say that civil penalties of this nature may be seen as another cost of doing business for large companies like Walmart.[19] Additionally, financial penalties tend to fall ultimately on individuals who are hardly culpable, rather than the individuals who are committed or even benefitted from the infraction.[20] For instance, stockholders bear the penalty in the form of reduced value to their security.[21] While in theory stockholders have an incentive to deter the illegal activity, rationally apathetic shareholders may not recognize the problem nor understand how to address it.[22] While a company’s stock price may drop following the imposition of a penalty, it usually bounces back, and therefore shareholders might not demand a behavior change to avoid future violations.[23]

If the fines were serious enough to threaten the company’s viability, it could lay off employees en masse.[24] Unlike shareholders who, as financial stakeholders, can be said to have received unjust enrichment from the benefits of the crime, employees receive no benefits.[25] Even less culpable are consumers. The fines may be passed on to the consumer in the form of higher prices.[26] In all three instances, the corporation largely goes unpunished and the intended beneficiaries of the statute end up bearing the costs of the penalty.[27]

However, the negative publicity generated by infractions might have more of a deterrent effect than financial penalties.[28] High-profile cases have the potential to destroy a corporation’s reputation, which they depend on for survival in the marketplace.[29] In Walmart’s case, the media reacted swiftly and aggressively to cover the lawsuit.[30] Since as early as 1989, Walmart has spent decades trying to build its reputation as a sustainable business.[31] The potential for reputational deterioration is heightened by the fact that sustainability is more important to consumers today than ever before.[32] Consumers see themselves, along with for-profit companies, as the primary catalyst for environmental change.[33] News that Walmart has engaged in illegal dumping of hazardous waste directly undercuts the company’s reputation and will likely be enough to deter Walmart from violating California’s Health and Safety Code.

The revised HWCL penalties will likely have a more direct deterrent effect on smaller companies. Smaller companies will undoubtedly ensure they modify their behavior to avoid fines in order to preserve their resources. Additionally, imposing these penalties on Walmart will signal to smaller companies that, if they violate the HWCL, they are likely to get caught. Studies have proven that certainty of punishment has a greater impact on deterrence than the severity of the punishment.[34]

While it is unlikely that the monetary increase in penalties will directly deter Walmart, the imposition of such fines will likely trigger reputational concerns that will undoubtedly deter Walmart from violating the HWCL. Additionally, the revised fines along with the investigation into Walmart’s practices will serve as a deterrent to smaller companies with fewer resources available to pay for fines and penalties. While these laws certainly will not prevent all companies from improperly disposing of hazardous waste, they represent a step in the right direction and will undoubtedly deter some from engaging in this harmful practice.

Rita Elfarissi is a Junior Editor with MJEAL. Rita can be reached at [email protected].

[1] Complaint for Injunctive Relief, Civil Penalties, and Other Relief, California v. Walmart Inc., No. 21cv004367 (Cal. Super. Ct. filed Dec. 20, 2021) (Cal. Super. Ct. of Alameda Cnty. Public Portal).

[2] id. at *11.

[3] id. at *25-32.

[4] Cal. Health & Safety Code § 25189 (West 2018).

[5] Complaint for Injunctive Relief, Civil Penalties, and Other Relief, supra note 1, at *5.

[6] Health & Safety § 25189.

[7] See California v. Wal-Mart Stores, Inc. No. 37-2010-00089145-CU-TT-CTL (Cal. Super. Ct. Apr. 5, 2018) (Cal. Super. Ct. of San Diego Cnty. Register of Actions).

[8] Jonathan Stamp, Wal-Mart to pay $27.6 million over toxic waste casesReuters (May 3, 2010, 1:37 PM), https://www.reuters.com/article/us-walmart-fine-california/wal-mart-to-pay-27-6-million-over- toxic-waste-case-idUSTRE6424B620100503.

[9] id.

[10] id.

[11] id.

[12] Pallavi Gogi, What’s With Wal-Mart’s Sales Woes?Bloomberg (Nov. 29, 2006, 5:10 AM), https://www.bloomberg.com/news/articles/2006-11-29/whats-with-wal-marts-sales-woes-businessweek-business -news-stock-market-and-financial-advice.

[13] Stacy Mitchell, Walmart’s Greenwash 4 (2012).

[14] Lee Scott, Retired President and CEO, Wal-Mart Stores, Inc., Twenty-First Century Leadership (Oct. 24, 2005).

[15] Statement from Phyllis Harris, Vice President of Env’t Compliance, Walmart US, Walmart Settles Civil Case with State of California (May 3, 2010), https://corporate.walmart.com/newsroom/2010/05/03/walmart -settles-civil-case-with-state-of-california.

[16] id.

[17] Stamp, supra note 8.

[18] Cal. Health & Safety Code § 25189 (West 2018).

[19] Dorothy S. Lund & Natasha Sarin, Is Corporate Criminal Punishment Just Another Cost of Doing Business?The Regulatory Review (July 6, 2020), https://www.theregreview.org/2020/07/06/lund-sarin-corporate-criminal-punishment-another-cost-doing-business/.

[20] John C. Coffee, Jr., Making the Punishment Fit the Corporation: The Problems of Finding an Optimal Corporation Criminal Sanction, 1 N. Ill. UL Rev. 3, 6 (1980).

[21] id.

[22] Lund & Sarin, supra note 19.

[23] id.

[24] coffee, supra note 20.

[25] id.

[26] id.

[27] id.

[28] Assaf Hamdani & Alon Klement, Corporate Crime and Deterrence, 61 Stan. L. Rev. 271, 280 (2008) (“The perception that the reputational consequences of a conviction could exceed even the substantial monetary penalties in any parallel civil litigation can explain why firms under investigation for criminal violations are willing to do almost whatever it takes—including waiving attorney -client privilege, assisting the government’s prosecution of their senior officers, and paying millions of dollars in civil fines—to avoid an indictment.”).

[29] id. at 279.

[30] For news article examples, see Jonathan Franklin, Walmart sued for allegedly dumping hazardous waste in California, NPR (Dec. 20, 2021, 7:43 PM), https://www.npr.org/2021/12/20/1066010089/walmart-sued-for-allegedly-dumping-hazardous-waste-in-california ; Jennifer Hijazi & Malathi Nayak, Walmart Faces California Suit Alleging Huge Dumps of Toxic Waste, Bloomberg Law(Dec. 20, 2021, 4:21 PM), https://news.bloomberglaw.com/environment-and-energy/walmart-illegally-dumped-hazardous-waste-california-says-2; Ramishah Maruf, Walmart sued for allegedly dumping over a million hazardous items a yearCNN Business (Dec. 20, 2021, 4:16 PM), https://www.cnn.com/2021/12/20/business/walmart-california-lawsuit-hazardous-waste/index.html.

[31] See Erica L. Plambeck & Lyn Denend, The Greening of Wal-Mart, 6 Stan. Soc. Innovation Rev. 52, 53 (2008) (discussing how Walmart launched one of the first major retail campaigns to sell environmentally safe products in 1989).

[32] See Recent Study Reveals More Than a Third of Global Consumers Are Willing to Pay More for Sustainability as Demand Grows for Environmentally-Friendly AlternativesBusiness Wire (Oct. 14, 2021, 11:33 AM), https://www.businesswire.com/news/home/20211014005090/en/Recent-Study-Reveals-More-Than-a-Third-of- Global-Consumers-Are-Willing-to-Pay-More-for-Sustainability-as-Demand-Grows-for-Environmentally-Friendly-Alternatives.

[33] id.

[34] Five Things About DeterrenceNational Institute of Justice (June 5, 2016), https://nij.ojp.gov/topics/articles/five-things-about-deterrence.

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