Business Owner Wins Judgment Against EPA for Overzealous Prosecution

In its zeal to crack down on alleged polluters, the EPA shot itself in the foot, handing a defendant ammunition to bring a case against the government.

After being exonerated in a pollution suit, James Knott, owner of Riverdale Mills Corporation (RMC) in Northbridge, Mass., filed suit against the EPA saying that its case against him was "vexatious, frivolous and in bad faith." Last month, a federal judge agreed, awarding Knott's company more than $68,000 in attorneys' fees. Knott has also filed a separate suit against the feds claiming violations of his constitutional rights.

The 150-employee RMC makes steel mesh for lobster traps. The company's manufacturing process includes two production lines that produce wastewater that is ultimately discharged into the town's public sewer.

The first phase of Knott's legal tangle began on Aug. 12, 1998, when a federal grand jury indicted him and his company on two felony counts of violating the Clean Water Act. The government alleged that RMC was discharging highly acidic wastewater into the town's sewer system. If convicted, Knott faced a possible six-year jail term and up to $1.5 million in fines. Both the EPA and the Department of Justice widely publicized the indictment as evidence of their campaign against criminal polluters.

But eight months later, the EPA dismissed all charges – after a federal prosecutor discovered that critical information that would have cleared Knott had been omitted from a search warrant application.

That wasn't good enough for Knott.

Arguing that the indictment damaged his reputation and threatened his 20-year-old business, Knott sued the government in June 1999 under the Hyde Amendment. The amendment allows exonerated defendants to recover legal costs if they can prove that the government has brought a case against them in bad faith.

Successful complaints under the Hyde Amendment are rare. Out of dozens of complaints filed since the amendment was passed in 1997, only a handful of people have recovered legal fees. The burden of proof rests on the exonerated defendant-turned-plaintiff, and "it's a very heavy burden to prove a bad faith, vexatious suit on the part of the government," says Boston attorney Warren Miller, co-counsel for Knott's Hyde Amendment complaint.

But U.S. District Judge Nathaniel Gorton ruled in Knott's favor, in the first application of the Hyde Amendment in New England. He stated on July 27 that the government's case against the mill owner was "vexatious," or without probable cause and calculated to harass. Knott had alleged that the EPA targeted him because he was well known for resisting what he considered excessive government regulation.

Miller says that Knott's case rested on exhibits demonstrating that the EPA indictment included some altered evidence from pH samplings taken at his plant on Oct. 21, 1997 and omitted other evidence from samplings taken on Nov. 7. The exhibits also showed that that EPA agents harassed and intimidated employees, according to Miller.

On Oct. 21, EPA agents, tipped off by an RMC employee that the company's wastewater treatment system was inoperable, arrived unannounced at the plant. With Knott's agreement, they took samples to record the acidity of wastewater in a manhole just outside the Riverdale plant. The agency's logbooks recorded some readings were within legal limits, some were not, says Miller.

Later that day, the agents took additional samples from the same manhole and from one 300 feet farther away, where the plant's wastewater enters the town sewer system. However, the agents took the samples in the absence of any RMC personnel, contrary to the agreement they had made with Knott during the consensual search warrant execution and thereby violating his Fourth Amendment rights, the plaintiff alleged.

The plaintiff's attorney hired former FBI handwriting expert David Grimes, who found that the afternoon records from Oct. 21 included "alterations, overwriting of numerals and letters, and strikeovers without proper initials for correction." Grimes also noted that "a numeral having a formation similar to the sevens in the notes was changed to a numeral four." A reading of five or above indicates compliance with the law. Grimes' assessment persuaded Judge Gorton that at least one recorded reading was altered.

However, Judge Gorton threw out all the afternoon readings, since they were taken in the absence of an RMC employee, in violation of the agreement the agency had made with Knott. By throwing out what he called "surreptitiously obtained samples," the judge considerably weakened the government's case.

Seven readings taken on Nov. 7 at the manhole close to the town's sewer system all showed acidity levels within the legal limits, the plaintiff argued.

It was those readings, omitted from a search warrant application the following year, that would have exonerated Knott, says Miller, who argues that the government "withheld exculpatory evidence."

The government appears to have admitted as much.

In a June 3, 1999 letter, Assistant U.S. Attorney Jeanne M. Kempthorne, head of the corruption unit, stated that the affidavit in support of the search warrant "omitted certain facts," including readings that showed the pH levels were within the legal limit. This admission came months after a statement by the government during discovery that "the United States is unaware of the existence of any exculpatory evidence."

The plaintiff also argued that the EPA search of his property on Nov. 7 constituted harassment. Judge Gorton agreed, describing the raid as "a virtual 'SWAT team' consisting of twenty-one EPA law enforcement officers and agents, many of whom were armed, [who] stormed the RMC facility to conduct pH samplings. They vigorously interrogated and videotaped employees causing them great distress and discomfort."

Although the litigation expenses for Knott amounted to $230,000, Judge Gorton reduced the award in accordance with limits imposed by the Hyde Amendment. Knott himself has a net worth of $2 million and was therefore excluded from recovery, explains Miller.

"But RMC was entitled to recover because the net worth of the company was not more than $7 million and the number of employees is not more than 500," he says.

Gorton ordered the government to pay RMC $68,726. But the ruling wasn't good enough for Knott.

He has filed a complaint against the government under the Federal Tort Claims Act for malicious prosecution and against three EPA agents for violating his constitutional rights. The complaint seeks damages of $12.85 million for RMC and $2.5 million for Knott for all the claims, and an additional $1 million in punitive damages against the EPA agents for each of the constitutional claims.

The Washington Legal Foundation has taken Knott's second case against the government. The conservative WLF describes itself as a "pro-free enterprise" organization that "provides legal assistance to small businesses challenging excessive and unwarranted regulatory actions." The organization took Knott's case, says WLF chief counsel Richard Samp, because "the EPA is trying to create environmental criminals where they don't exist. [They're] trying to expand the scope of criminal law and we think that needs to be countered."

Plaintiff's attorney: Warren Miller, of Boston; Henry T. Dunker, of Weymouth, Mass., and Jamy B. Buchanan, of Boston.

Defense attorney: Stephen Solow and David Uhlmann, U.S. Attorney's Office, Environmental Crimes Section, Washington, D.C.

The case: U.S. District Court, District of Massachusetts, United States of America v. James M. Knott, Sr., and Riverdale Mills Corporation, CA No: 98-40022-NMG; Judge Nathaniel M. Gorton.

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