A unit of Caterpillar that repaired railcars at a Los Angeles facility pled guilty last week to a federal environmental offense of dumping parts into the ocean to conceal that it was performing unnecessary and improper repairs for several railcar operators.
United Industries LLC – a subsidiary of Progress Rail Services, Inc., which itself is a subsidiary of Caterpillar, Inc. – pled guilty to the federal water pollution charge.
Immediately after the guilty plea, United States District Judge Dolly M. Gee imposed a sentence that required United Industries to pay a $5 million criminal fine.
Judge Gee also ordered United Industries to pay $20 million in restitution to three victim companies – TTX Company, Pacer International, and Greenbrier Company, all of whom owned and operated railcars that were improperly serviced and repaired.
The Caterpillar unit was represented by George Stamboulidis and Lauren Resnick of Baker Hostetler in New York.
The victim rail car companies were represented by Skadden Arps.
United Industries admitted in a plea agreement filed in federal court that its employees “knowingly conducted inadequate inspections” on railcars the company serviced.
United Industries employees improperly replaced functioning parts that did not need to be removed in a process known as making repairs to “green parts.”
Employees also made random repairs on the railcars without conducting a proper inspection.
The victim companies were then charged for the unnecessary and improper repairs.
According to the plea agreement, “in order to conceal their unnecessary and improper repairs, United Industries’ employees, operating within the scope of their employment and motivated by an intent to benefit the company, concealed the replacement of ‘green’ railcar parts by throwing such parts into the Port of Long Beach (also known as Long Beach Harbor), a navigable water of the United States, from the shore alongside the Terminal Island repair facility.”
After receiving a tip about the improper dumping, Port authorities conducted underwater dives that led to the discovery of a “large debris field” and the recovery of railcar parts that did not show any signs of mechanical wear that would have required replacement.
As a result of illegal conduct that spanned the years 2008 through 2014 – including the unnecessary and improper repairs on railcar adapters, brake beams, grating platforms, brake shoes, friction castings, hand brakes, roof liners and side bearings – United Industries earned at least $5 million.
After the investigation was initiated, United Industries exited the intermodal railcar repair business and no longer operates intermodal repair facilities on Terminal Island or elsewhere.
United Industries pled guilty to a misdemeanor offense of depositing refuse in navigable waters, specifically the Port of Long Beach.
The investigation into United Industries’ improper repairs did not uncover any rail accidents attributable to the company’s illegal activities.
In a joint submission to the court, lawyers for the government and for Caterpillar unit argue that a probation officer is not necessary.
“The parties submit that probation is unnecessary for several reasons,” the lawyers argued. :First, defendant withdrew from the intermodal railcar repair industry after the government began its investigation. Second, defense counsel represents that defendant has already made restitution to some customers, and defendant has agreed to pay the additional agreed-upon $20 million in restitution within 60 days of sentencing. Third, and finally, defense counsel represents that prior to departing the industry, defendant had already enhanced its compliance program to implement scrap verification procedures at the Terminal Island location and other intermodal repair facilities. As such, the parties submit that a compliance program and/or probation are not necessary.”