BOSTON — At $500,000, it was touted as the largest corporate criminal fine in state history.
And so it came as no surprise that Pan Am Railways and its subsidiaries, Springfield Terminal Railway, Boston & Maine Corp. and Maine Central Railroad, would try to appeal a precedent-setting case that unfolded in Ayer.
But that attempt was derailed following Tuesday’s ruling handed down by the Appeals Court, affirming the convictions on all counts.
Each rail subsidiary was fined $125,000 for its share in the Aug. 8, 2006, diesel-fuel spill from a freight locomotive in Ayer. The companies were collectively found guilty for not reporting the spill in a timely manner as required by MassDEP regulations, but also for an active attempt to cover up the spill.
As part of their sentencing on March 30, 2009, the corporations were also placed on three years probation. Middlesex Superior Court Judge Elizabeth Fahey also ordered that there would be no bonuses greater than $100,000 awarded to executives at any company in a 12-month period until the criminal fines were paid to the state. The fines were paid into escrow jointly held by Pan Am and the attorney general’s office pending the outcome of the appeals.
“We are pleased the Appeals Court supported our position that corporations must be held accountable for violating Massachusetts’ environmental laws,” Attorney General Martha Coakley told Nashoba Publishing.
“Today’s decision makes it clear that a company cannot avoid responsibility by creating a corporate structure that allows it to "plead ignorance" in the face of an environmental disaster.”
At trial, it was established that two employees reported a strong diesel odor near locomotive MEC 506, owned by Maine Central Railroad, at 7 p.m. on Aug. 8, 2006. The engine was parked in a rail yard owned by Boston & Maine Corp. and operated by Springfield Terminal.
An hour later, a worker noticed fuel spilling “like a waterfall” before shutting down the engine. The spill was reported to a train dispatcher and to Pan Am’s power control. The reporting employee estimated hundreds of gallons of fuel spilled into the yard. Environmental regulations require that spills in excess of 10 gallons must be reported to the state Department of Environmental Protection within two hours.
Instead, employees were deployed to swab the area with absorbent pads. The next morning, it was noticed the leak had continued overnight. The engineer estimated the spill area at 30 feet by 60 feet wide.
At 6:30 a.m. on Aug. 9, 2006, a Pan Am corporate vice president talked to the train master who reported about 100 gallons spilled. The company-led cleanup continued into the day. Fuel-soaked ballast was excavated with heavy machinery and removed from the site in several 55-gallon drums.
Authorities were finally notified at 2:45 p.m., when an anonymous tipster alerted the MassDEP. By that time, 17 hours had passed since employees first alerted their supervisors.
On the afternoon of Aug. 9, the Ayer Fire Department, the DEP Emergency Response Team and inspectors with the Federal Railroad Administration arrived. Federal Railroad Administration officials later confirmed that the railroad companies knew of the spill and its extent but failed to report it. Based on fueling records and travel history, federal investigators concluded that 947 gallons of fuel were unaccounted for from the locomotive, which had a 3,750-gallon capacity.
Officials remained at the scene to oversee excavation work into Aug. 10. Ultimately, a 60-by-25-foot area of earth was removed and disposed of, groundwater-monitoring wells were installed and soil samples taken from a wider area. The MassDEP concluded that no groundwater contamination occurred.
At trial, a jury deliberated for an hour and a half before returning guilty verdicts against the companies in 2009.
Affirmed on all counts
Appeals Court Justice David Mills wrote the ruling released Tuesday, Aug. 9, affirming that the companies were effectively one for the sake of the criminal case since they fell under the Pan Am (formerly Guilford) Railway corporate umbrella.
On appeal, Billerica-based Pan Am argued it was improperly denied a request for a specific jury, stressing that a willful or intentional mental state was required to be found guilty of the crime. Mills disagreed, stating that MGL Chapter 21E as written doesn’t include the word willful, but merely that a “responsible person” must report a spill as soon as the person “acquires knowledge of a release.”
As such, Pan Am also failed to persuade the court that criminal probation cannot attach to a corporation. Mills said it was “entirely appropriate” for Judge Fahey to order Pan Am officers to sign the conditions of probation. “There was no error.”
Pan Am argued it was inappropriate to hold the companies had a collective corporate knowledge of the spill sufficient to hold them responsible for the criminal charges. The court disagreed, stating that proof of sufficient knowledge was provided that shows employees involved knew laws were being broken.
Pan Am also argued that lumping the rail companies together was inappropriate in that there needed to be some evidence of “pervasive control” with “fraudulent or injurious consequences” between the companies in order to “pierce the corporate veil” between the corporate entities to hold them all criminally responsible.
The court disagreed, finding that Fahey properly instructed the jury that it could reach each company if there was evidence of confused intermingling of corporate activity and a disregard for corporate separation.
Pan Am argued the definition of a “day” used at trial. The company was convicted for failing to report the spill for two days. The company argued authorities were alerted within one day, which Pan Am argued means a 24-hour period. Again, the court was not persuaded.
“We have no occasion to disturb the judgments,” wrote Mills for the court.
A spokesman for the attorney general’s office said on Tuesday that since its not immediately clear if Pan Am will seek further appellate review, the $500,000 in fines will remain in escrow.