Summary of a Recent
Judicial Development in
Environmental Law

FIFRA's Guaranty Provision to Be Interpreted as Understood
by an Ordinary Person of Average Understanding

Eric H. Foy
National AgLaw Center Research Associate

Summary of Decision

In Sultan Chemists, Inc. v. EPA, 281 F.3d 73 (3rd Cir. 2002), the United States Third Circuit Court of Appeals denied a pesticide distributor's petition for review of the United States Environmental Protection Agency's (EPA) decision to affirm an administrative enforcement action against the distributor for violations of the Federal Insecticide, Fungicide, and Rodenticide Act (FIFRA). The court held that the EPA's interpretation of FIFRA's guaranty provision was reasonable.

Background

Sultan Chemists (Sultan) manufactured and sold dental supplies. Id. at 75. On October 14, 1992, it entered into an agreement to distribute a line of antimicrobial pesticide products produced by Health Care Products Inc. (HCP). Id. The shipment contained a glutaraldehyde solution and an explicit guaranty that the solution was registered with the EPA. Id. In 1993, the EPA conducted two inspections of Sultan's shipments to HCP and discovered "that four of the products distributed or sold by Sultan were not registered." Id. Although the glutaraldehyde solution was registered with the EPA, FIFRA required each of the products made with solution to be independently registered. Id. (citing 40 C.F.R. § 152.3(t) (2001)). On February 15, the EPA issued a complaint against Sultan for violating FIFRA and sought $445,000 in penalties. Id. at 76. Sultan requested and was granted a formal administrative hearing. Id. At the hearing, Sultan argued that the agreement with HCP created a valid guaranty under FIFRA § 12(b)(1) for all of the products made with the solution. Id. However, the presiding officer held that "the guaranty language of the Agreement only applied to the [s]olution," and a penalty of $175,000 was assessed. Id. On August 4, 1999, the court found Sultan liable for 89 violations of FIFRA's registration requirements. Id. at 77. The EPA agreed with the presiding officer's ruling. Id. at 78. Sultan then petitioned the instant court for review. Id.

Arguments

On review, Sultan petitioned the court to address the following issues:

(1) whether [the EPA] abused its discretion by construing the Agreement as failing to satisfy the requirements of FIFRA § 12(b)(1);
(2) whether [the EPA] abused its discretion in deciding that Sultan's extrinsic evidence was insufficient to show that the Agreement created a guaranty under FIFRA § 12(b)(1); and
(3) whether [the EPA] abused its discretion in interpreting FIFRA's penalty factors and in assessing the $175,000 penalty.
Id. at 78.

Analysis and Holdings

Pursuant to FIFRA, the court was required to sustain the EPA's factual findings if they were "supported by substantial evidence when considered on the record as a whole." Id. (citing 7 U.S.C. § 136n(b)). The court first addressed Sultan's argument that FIFRA "require[d] only that there be a guaranty 'to the effect' that the pesticide was lawfully registered, which it argue[d] suggest[ed] that the guaranty requirement [was] not especially stringent." Id. at 79. In contrast, the EPA "interpret[ed] the same language to require that there must be some assertion in the written instrument 'to the effect' that the pesticides were 'lawfully registered.'" Id. Because the EPA's interpretation was not unreasonable, the court deferred to the agency's "reasonable interpretation." Id.

The court then addressed Sultan's argument "that the Agreement contained representations that all of the Products were registered at the time of the sale and delivery to Sultan, thus satisfying FIFRA § 12(b)(1)." Id. The EPA argued that the words of the agreement, as understood by an "ordinary person of average understanding," indicated that the guaranty only applied to the solution, but not to the other products as well. Id. After reviewing the agreement's language, the court agreed with the EPA's interpretation. Id. 79-80.

Lastly, Sultan argued that the EPA's interpretation of the agreement and FIFRA § 12(b)(1) "r[an] counter to the purpose of the guaranty provision, which [was] to shift liability to manufacturers who lie[d] about whether or not their products [were] registered." Id. at 81. However, Sultan failed to cite any authority to support its assertion. Id. The court stated that the "guaranty provision must be construed in accordance with, and not inconsistent with, the purpose of FIFRA's registration program to protect human health and the environment from risks associated with pesticides." Id. For these reasons, the court denied Sultan's petition for review as to the EPA's factual findings. Id.

Sultan also argued that the presiding officer should have allowed it to introduce extrinsic evidence to show that the guaranty applied to the entire product line. Id. However, under Florida law, a court may only allow extrinsic evidence of a course of dealing or performance if the language of an agreement is ambiguous. Id. at 82. In this case, Sultan never argued that the Agreement was ambiguous, so it had "no basis for introducing extrinsic evidence." Id.

Finally, the court addressed Sultan's argument that the EPA's penalty assessment was excessive. Id. at 82. Because the EPA "is charged with choosing the means by which to enforce and achieve the goals of FIFRA," its penalty assessments receive "heightened deference." Id. at 83. Sultan offered no evidence showing that the EPA abused its discretion in assessing the $175,000 penalty, so the court deferred to the EPA's assessment. Id. at 84.

The case was decided on February 6, 2002.