Tort Risk and Business Regulation Simulation

Jane Thomas

University of Phoenix

Business Law/531

Thomas Friedman

October 19, 2010

In today’s business world it is crucial for organizations to have a plan in place to identify and manage tort liability. This can be managed through preventive, detective and corrective measures. The purpose of a plan is for an organization to manage and minimize individual risks. Organizations that fail to comply with Federal, State, and local regulations expose the organization to regulatory risks. This could greatly impact the organizations reputation, earnings, and existing assets. This paper will identify regulatory risks and tort liability as related to Alumina Inc. The United States based Alumina Inc. is a global multibillion dollar company based in the state of Erehwon near Lake Dira. Alumina is a manufacturing plant that specializes in automotive components, alumina refining, aluminum smelting, bauxite mining, and packaging materials. The corporation operates in eight countries with 70% of its sales coming from the United States. Alumina falls under jurisdiction 6 of the Environmental Protection Agency (EPA). During a routine EPA compliance evaluation inspection five years ago, Alumina was found to be violation of discharging polynuclear aromatic hydrocarbons (PAH) that exceeded the EPA standards. EPA demanded a cleanup to which Alumina complied without delay. Alumina Inc. is being accused by a local resident Kelly Bates that her ten year old daughter has developed leukemia as a proximate cause of the elevated levels of PAH in the drinking water. She has filed a multi million dollar lawsuit against Alumina for neglect. She also alleges in the local newspaper, that her daughter’s disease dates back to the company’s first violation of environmental law. With the exception of the one violation five years ago Alumina has maintained a good environmental regulation compliance record. Kelly Bates lawsuit threatens the good reputation of the company (Business Regulation Simulation). Every organization is subject to and threatened by torts. As Cheeseman states “Tort is the French word for wrong.” When the EPA notified Alumina that they had exceeded the safety levels of PAH, they immediately took corrective action and rectified the problem. They realized the importance of maintaining a positive public image and the need to comply with all regulatory guidelines. Upon hearing of the lawsuit Alumina decided to have an independent site study conducted to ensure there were no new environmental violations. If violations were identified they would be able to take advantage of the self-policing incentive the federal government offers. In doing their own independent study, they relayed the message to the community that Ms. Bates accusations that they continued to contaminate the waters of Lake Dira were unfounded. An additional source of the pollution was also identified by an independent scientific journal. They found that mobile sources of air pollution, the increase of traffic was the cause of increased PAH levels. This could pose a threat to human, aquatic, and animal life. The other option discussed was to release a public statement immediately denying the allegations before doing the independent study. This decision would have created more issues and questions for Alumina. The decision to do an investigation into Ms. Bates background is an invasion of privacy. If Alumina decided to use the information publicly they could find themselves in legal trouble for libel, slander, or defamation of character. Alumina’s independent site study proved they currently were not in violation of environmental standards set by the EPA. The study could not show however, that there was not a proximate cause five years ago. Ms. Bates responded to the study by requesting a copy of the violation of the clean water act from the EPA audit. Citizens can request information related to corporations and federal agencies under the Freedom of Information Act (FOIA) with exemption 4. Allowing the release of the information shows no admission of guilt but a willingness to cooperate. It also allows Alumina to stay competitive in the global market because it allows them to withhold confidential business data. In addition, the disclosure may be limited to EPA’s adjudication of Alumina’s violation. This restricts them from disclosing sensitive data and therefore reduces public reactions to the violation. The other option discussed was to do a full disclosure of all documents. This would have been a poor decision. As stated earlier, disclosing all information would risk Alumina’s competitive business in the global aluminum trade. Furthermore, the community had already become hypersensitive to Alumina when the results of the audit were publicly reported. Allowing full disclosure would cause more public image damage. Alumina Inc. decided to settle the dispute by alternative dispute resolution (ADR). This process allows both parties to come together and discuss the issues with a neutral third party. The mediator was successful in coming to a win-win outcome between both parties. The confidential settlement awarded Ms. Bates compensation and punitive damages. It included reimbursement of past medical expenses, a lump sum for future medical needs, and an education fund set aside so the child may attend college in future. In return, Ms. Bates signed a strict confidentiality agreement and a release of all future claims. Alumina is pleased because the cost of ADR is a fraction of what it would have cost to see this case go to litigation. It could have taken years of paying an expensive law firm as well as high paid expert witness testimony. Alumina also needs to consider that if the case went before a jury they would likely side with a ten year-old child suffering from leukemia as opposed to a multibillion dollar company who violated the Clean Water Act and Safe Drinking Act. All organizations must comply with Federal, state, and local regulations. When an organization is out of compliance with regulations, they place themselves at risk and may be penalized by the government as well as the public. The initial step is identifying risks related to the organization. Once the risks are identified the organization must ensure that they have an effective plan in place to prevent and detect. If a risk has been exposed it is essential that a plan is in place for corrective action. Alumina Inc. preventive plan should include continued self audits to prevent future violations of the EPA guidelines.

References
Cheeseman, H.R. (2010). Business Law. Legal Environment, Online Commerce, Business Ethics, and International Issues, Seventh Edition. Chapter 5: Intentional Torts and Negligence. Retrieved from the University of Phoenix eBook collection database.
Cheeseman, H.R. (2010). Business Law. Legal Environment, Online Commerce, Business Ethics, and International Issues, Seventh Edition. Chapter 45: Environmental Protection and Global Warming. Retrieved from the University of Business Regulation Simulation. University of Phoenix rEsource , MBA-531 course material.