Fracking: USA v. MacDeWayne

Fracking Case

307 F.3d 1231

UNITED STATES of America, Plaintiff-Appellee,
Mac DeWayne OVERHOLT and Koteswara Attaluri, Defendants-Appellants.

No. 00-5074.

No. 00-5081.

United States Court of Appeals, Tenth Circuit.

October 10, 2002.


Michael G. Katz, Federal Public Defender, and James P. Moran, Assistant Federal Public Defender, Denver, CO, on the brief for Defendant-Appellant Overholt.

Todd S. Aagaard, Attorney, United States Department of Justice, Environment & Natural Resources Division, Washington, D.C., for Plaintiff-Appellee in Case No. 00-5081 (John C. Cruden, Acting Assistant Attorney General, Washington, D.C., David E. O’Meilia, United States Attorney, Kevin Leitch, Assistant United States Attorney, Tulsa, OK, John A. Bryson and Andrew D. Goldsmith, Attorneys, United States Department of Justice, Environment & Natural Resources Division, Washington, D.C., with him on the brief in both cases).

Before EBEL, BALDOCK, and HARTZ, Circuit Judges.

HARTZ, Circuit Judge.


2Defendant Koteswara Attaluri was president of Allied Environmental Services (Allied), which was hired to take petroleum-impacted wastewater from several Department of Defense installations and dispose of it properly. Allied employed Overholt Trucking, owned by Defendant DeWayne “Mac” Overholt, to perform hauling incident to the project. The gist of the charges against Defendants is that they unlawfully injected the wastewater into disposal wells and tried to cover up their crimes. 

3Allied, Attaluri, and Overholt were convicted under 18 U.S.C. § 371 on a charge that they entered into a conspiracy with five objects: (1) improperly disposing of petroleum-impacted wastewater, in violation of the Safe Drinking Water Act (SDWA), 42 U.S.C. §§ 300h, et seq.; (2) transporting hazardous wastes without a manifest, in violation of the Resource Conservation and Recovery Act (RCRA), 42 U.S.C. § 6928(d)(1); (3) using the mails in the commission of a fraud, in violation of 18 U.S.C. § 1341; (4) using interstate wire communications in the commission of a fraud, in violation of 18 U.S.C. § 1343; and (5) defrauding the United States by obstructing the lawful environmental protection functions of the Environmental Protection Agency (EPA) and the Department of Defense. In five special verdicts, the jury found that they conspired to commit each of the alleged objects of the conspiracy. 

4All three were also convicted of a substantive count of mail fraud. In addition, Overholt was convicted on two counts of discharging a pollutant into United States waters, in violation of the Clean Water Act (CWA), 33 U.S.C. §§ 1311(a), 1319(c)(2)(A); one count of illegally transporting hazardous waste, in violation of the RCRA; and one count of making false statements to the federal government in the course of an investigation, in violation of 18 U.S.C. § 1001. Although Allied and Attaluri were also charged on the two CWA counts, they were acquitted. Co-defendant Gary Bicknell, an Allied employee, was acquitted of all charges against him. Attaluri was sentenced to a 55-month prison term; Overholt received an 87-month sentence. Each was ordered to pay restitution of $1,265,078. 

5Attaluri and Overholt raise numerous issues on appeal. (Allied did not appeal.) Attaluri claims that the jury instructions (1) did not accurately set forth the law regarding what wastes could be injected into the disposal wells used by Defendants, (2) misled the jury regarding what constitutes hazardous waste, and (3) improperly indicated that the offense of defrauding the United States did not require an intent to deceive. He also claims he was entitled to instructions that (4) the SDWA imposes criminal sanctions only on those who know the law they are violating and (5) the SDWA does not impose criminal penalties for violations committed in good faith ignorance of the law. In addition, Attaluri raises several challenges to the sufficiency of the evidence to support his conspiracy and mail fraud convictions; and Overholt challenges the sufficiency of the evidence to support any of his convictions except making false statements. 

6Both Defendants also claim various errors regarding their sentences. Attaluri contends on several grounds that the restitution award was improper and excessive, and complains that the district court did not set a payment schedule. He also contests two factors used to enhance his sentence under the United States Sentencing Guidelines, contending that the district court miscalculated the loss from fraud when applying U.S.S.G. § 2F1.l and should not have applied U.S.S.G. § 2Q1.2(b)(1)(A), because the waste was not discharged into the environment and did not contaminate the environment. Overholt contends that the district court improperly enhanced his sentence under U.S.S.G. § 3B1.1(a) for his role as an “organizer or leader of a criminal activity” and improperly considered two misdemeanors when determining his criminal history category. 

7Attaluri and Overholt appealed separately. We heard oral argument on Attaluri’s appeal but, at the request of both the Government and Overholt, no oral argument was held in his case. Nevertheless, we consolidate these cases because of the overlap of facts and issues. We have jurisdiction under 28 U.S.C. § 1291. We reverse the mail fraud convictions and affirm all other convictions. We also affirm the sentences, except that we remand to the district court to set a payment schedule for restitution by Attaluri. 

8I. Background. 

9We begin with the factual background. Additional evidence will be described as needed in the discussion of the specific issues on appeal. 

10The Defendants’ Businesses and Disposal Wells. 

11In 1994 Allied successfully bid to become a subcontractor on four Department of Defense contracts for the removal of underground petroleum storage tanks (USTs) at various military sites throughout the Midwest. The primary contractor would unearth the UST and rinse out any remaining oil sludge or chemical residue. Allied was responsible for hauling the rinsewater to its treatment facility at Bonner Springs, Kansas, where it was to remove any refined petroleum product (which it could sell) and properly dispose of the treated wastewater. 

12Allied hired independent trucking companies to fulfill its hauling needs. Overholt Trucking was hired from November 1994 to May 1995. Although Allied made representations to the government contractors that it would haul wastewater from Bonner Springs to publicly owned wastewater treatment facilities, Overholt truckers were often instructed to inject untreated wastewater into disposal wells in Oklahoma. On some occasions Overholt truckers picked up the wastewater from tanks at Bonner Springs. At other times they would arrive at Bonner Springs and simply pick up loads directly from other trucks coming in from the government sites. And at still other times, they would go to the government sites themselves, pick up the rinsewater, and proceed directly to a disposal well, bypassing Bonner Springs altogether. Overholt acted to conceal his company’s use of the disposal wells by instructing his drivers to falsify bills of lading to misrepresent the origin and characteristics of the loads and by telling drivers to use the disposal wells at night. 

13The well owners eventually refused admittance to Overholt’s drivers because of Overholt’s delinquencies in paying disposal fees and their suspicions that his drivers were dumping illegal wastes. As an alternative, Overholt used the Peko tank battery, a collection of a dozen above-ground oil storage tanks (OSTs) near Drumright, Oklahoma. Despite never receiving permission to use the tanks, Overholt began instructing his drivers to dump truckloads of wastewater there. 

14In addition to hauling, Overholt had a side-business trading in “burner fuel,” a combustible product made from petroleum-based waste. Overholt would treat sludge built up in the bottom of OSTs with a chemical thinning agent, pump out the resulting “blended oil tank bottom” burner fuel, and sell it for use in industrial furnaces. 

15The Hillside Dump. 

16On December 31, 1994, one of Overholt’s drivers, Bob Fleming, transported a truckload of wastewater from a military site to Oklahoma for dumping in a disposal well. When he arrived at the well, Fleming was unable to empty the truck’s contents because the cold weather had frozen its exit valve. Fleming drove the truck to Overholt’s property and left it there, explaining the situation to Overholt. Overholt attempted to fix the valve by beating on it with a hammer. The frozen valve broke, and the truck’s contents started spilling down the adjacent hillside. Overholt waited for the spill to abate and replaced the valve. He finished his work around 4:00 a.m. and went to bed. 

17Early the next morning a neighbor of Overholt’s awoke to find that the adjacent creek contained a black, smelly substance that gave off a “real forceful, pungent odor,” and stung his eyes and nose. The neighbor called the local deputy sheriff and the Army Corps of Engineers to investigate. The spill was traced to the hill abutting Overholt’s property, where a wide trail of dead vegetation led up the hill to Overholt’s tanker truck, still parked in his yard. 

18When Overholt arose that morning, he found the investigators on his property. While repeatedly disclaiming responsibility for the spill, he offered to clean it up and proceeded to vacuum the waste out of the creek. As soon as the investigators left, the neighbor observed Overholt dumping the pollutants back into the creek. Four to five days after the spill, the neighbor drove to Lake Keystone at the end of the creek and observed oil collecting on the shore. No further investigation into this incident was conducted. 

19The Carburetor-Cleaner Incident and Subsequent Investigation. 

20In the conduct of his burner fuel business, Overholt sometimes used as a thinner a carburetor cleaner containing orthodichlorobenzene, a chlorinated solvent listed as a hazardous material under EPA regulations. See40 C.F.R. § 261.33(f), Hazardous Waste No. U070 (1,2 dichlorobenzene). On May 9, 1995, an Overholt driver hauled a large quantity of the carburetor cleaner to Bonner Springs and put it into one of the tanks to help extract the sludge. With some carburetor cleaner still in his truck, the driver then loaded the contents from another Bonner Springs tank and took it to Peko. 

21Later that day an Oklahoma Corporation Commission field inspector was driving past Peko when he noticed a tanker truck parked next to one of the tanks. Because he thought Peko had been abandoned, he decided to investigate. He saw a man next to the cab of the tanker truck, covered in open sores, working diligently to shovel dirt over a 10-foot puddle of a clear liquid that smelled like carburetor cleaner. The man said the liquid was oil. The inspector told the man that it was not oil and asked who owned it. The man said that he did not know. Frustrated with the man’s stonewalling, the inspector copied down the tanker’s license plate number and continued on his rounds. 

22After the license check revealed that the truck was Overholt’s, the Oklahoma Department of Environmental Quality (ODEQ) launched an investigation. On May 12, ODEQ investigators first stopped at Peko, where vapor readings from the tanks’ hatches indicated the presence of organic solvents. The investigation team then proceeded to Overholt’s residence, where they noticed that one of the two tanker trucks parked there bore the license tag reported three days earlier. Overholt told the investigators he was hauling gas, oil, and diesel fuel for Allied, and that he was going to use these materials to make burner fuel. He stated that the tanker with the reported license tag contained burner fuel. Although at first he said the other tanker was empty, he then said it contained diesel fuel. As an investigator was taking samples, however, Overholt volunteered that he didn’t know what would be in the oil because “you know how the government is.” 

23On May 15 an ODEQ investigator contacted Attaluri to inquire about Allied’s business relationship with Overholt Trucking. She asked him to provide documentation relating to that relationship. Two days later another ODEQ investigator followed up on the document request. Attaluri agreed to fax the requested documents that day, but no fax was sent. That same day Attaluri telephoned Overholt’s residence and Overholt then telephoned one of his drivers to ask him to prepare a number of false, back-dated bills of lading indicating that he had hauled burner fuel from Bonner Springs to Peko every Wednesday between March 1, 1995, and April 26, 1995. The driver complied. The Attaluri residence received a call from Overholt’s residence that evening. The next day Overholt mailed the falsified bills of lading to Attaluri. 

24On May 19 an ODEQ investigative team performed tests that revealed ortho-dichlorobenzene contamination at Peko and at Overholt’s residence. The ODEQ executed a search warrant for Overholt’s residence on June 22. Additional soil samples confirmed the presence of ortho-dichlorobenzene. Six days later, investigators from the ODEQ and the Department of Defense interviewed Overholt at his home. Overholt told them that he had deposited 20 to 30 drums of carburetor cleaner into the two small OSTs on his property and that his drivers had taken some to Peko to clean out the tank bottoms there. The investigators told Overholt that the tanks contained ortho-dichlorobenzene, a hazardous material, and that he should not blend or otherwise dispose of anything in his tanker trucks or in the tanks on his property. When asked about the dead vegetation on his property and the appearance of a spill or a chemical dump, Overholt denied having knowledge of any chemical spills or dumps on his property. 

25Immediately thereafter, Overholt called Industrial Oil Service, a waste-oil hauling company not licensed to carry hazardous materials, and made arrangements to empty the OSTs on his property. When the driver arrived two days later, he told Overholt that he suspected the fluid in the OSTs was a solvent. Overholt insisted that it was diesel fuel. Before leaving, the driver required Overholt to sign a shipping manifest certifying that the tanker truck did not contain any hazardous wastes. 

26An ODEQ investigator further questioned Overholt on July 25. Overholt admitted to previously letting rinsewater from his trucks run down the hillside but stated that he would release only five to ten gallons a week, and claimed that he had not done so in over a year. Shortly thereafter, he admitted he would occasionally release hundreds of gallons of rinsewater at a time. The investigator then asked Overholt about the status of the ortho-dichlorobenzene that he had been told not to move. After initially responding that it was still there, he stated that it might not be. He explained that he had hired an oil recycler to pick up some oil from a red tank on his property, but because he was not present when the driver arrived, the company might have taken waste from the tanker truck containing the ortho-dichlorobenzene. 

27On November 15, 1995, an EPA investigative team obtained a warrant to search Allied’s office. They found a file folder containing a copy of the applicable federal regulations for disposal wells. They also found near Attaluri’s desk an envelope containing the false bills of lading prepared by Overholt’s driver. The envelope was postmarked from Oklahoma on May 18, 1995, addressed to Allied, with Overholt and his wife listed on the return sticker. Attaluri told the investigators that Overholt was transporting usable oil, which he was free to process into burner fuel for himself. He said that the waste from this process was to be “deep-welled,” and that there were no hazardous wastes in anything Overholt was hauling. 

28II. Challenges to the Convictions. 

29A. The Conspiracy Count. 

30Attaluri and Overholt were both convicted of a conspiracy having five objects. The jury returned a general verdict of guilty of the conspiracy, and in five special verdicts stated that the Defendants conspired to achieve each of the alleged objects. Most of Defendants’ challenges to the conspiracy conviction relate to fewer than all the objects of the conspiracy — usually only one. As a result, we need not address every challenge. The conviction can be upheld if we find no error regarding the conviction as to any one of the conspiratorial objects. See United States v. McNutt,908 F.2d 561, 565 (10th Cir. 1990) (upholding defendant’s two-object conspiracy conviction when one of the charged objects was not a substantive violation of federal law, but the jury indicated by special verdict that it convicted on both objects). 

31At the same time, however, we note that the sentencing determinations challenged by Attaluri relate to more than one object of the conspiracy. The challenged restitution award is predicated on conduct related to defrauding the government. One of the challenges to the enhancement of his sentence also relates to the commission of fraud against the government, but a second challenge relates to the improper injection of wastes into disposal wells. We therefore will address his challenges with respect to those two alleged objects of the conspiracy, but we need not address other challenges to the verdict on the conspiracy count. 

321. Violation of SDWA. 

33a. Class II Disposal Wells. 

34Attaluri’s first challenge concerns the allegation that he conspired to inject a nonpermitted liquid waste into a Class II disposal well. He argues that the injection was lawful under the governing regulations issued by the Oklahoma Corporation Commission. We reject the argument because the Oklahoma regulations are no more permissive than the federal law on which the jury was instructed. 

35Before addressing Attaluri’s contentions, we review the pertinent provisions of the SDWA. The SDWA established a federally mandated, state-administered regulatory scheme for the protection of natural sources of drinking water. See HRI, Inc. v. E.P.A.,198 F.3d 1224, 1232 (10th Cir. 2000). The Act delegates primary enforcement responsibility to the states. Each state was required to submit for approval by the EPA an “underground injection control program” designed “to assure that underground injection will not endanger drinking water sources.” 42 U.S.C. § 300h-1(a)-(b). If the EPA did not approve a program, it was to fashion regulations applicable to the state. 42 U.S.C. § 300h-1(c). 

36All state programs must meet the EPA minimum requirements published in the Code of Federal Regulations. 42 U.S.C. § 300h(a), (b). The EPA regulations divide underground injection wells into five classes, each defined by what may be injected into wells of that class. 40 C.F.R. § 144.6. The regulations establish minimum construction and maintenance standards for each class. 40 C.F.R. pt. 146. This case involves “Class II” wells, which are “[w]ells which inject fluids: 

37(1) Which are brought to the surface in connection with natural gas storage operations, or conventional oil or natural gas production and may be commingled with waste waters from gas plants which are an integral part of production operations, unless those waters are classified as a hazardous waste at the time of injection. 

38(2) For enhanced recovery of oil or natural gas; and 

39(3) For storage of hydrocarbons which are liquid at standard temperature and pressure.” 

4040 C.F.R. § 144.6(b). 

41Oklahoma’s application for primary enforcement power over Class II wells was approved on December 2, 1981. See 40 C.F.R. § 147.1851. Oklahoma’s program delegates regulatory authority over Class II wells to the Oklahoma Corporation Commission (OCC). Id.The OCC regulations divide wells into four categories: (1) enhanced recovery injection wells, (2) disposal wells, (3) storage wells, and (4) simultaneous injection wells. Okla. Admin. Code [OAC] 165:10-5-1. Each category is a type of Class II well. Only the second category, “disposal wells,” is at issue in this case. “A disposal well is a well which injects, for purposes other than enhanced recovery, those fluids brought to the surface in connection with oil or natural gas production.” OAC 165:10-5-1(2). 

42The SDWA provides criminal penalties for willful violation “of an applicable underground injection control program.” 42 U.S.C. § 300h-2(b). The Act defines “applicable underground injection control program” as “the program (or most recent amendment thereof) (1) which has been adopted by the State and which has been approved [by the EPA] under subsection (b) of this section….” 42 U.S.C. § 300h-1(d). 

43Attaluri correctly contends that the Oklahoma regulatory scheme is the “applicable underground injection control program” in this case. He further contends, however, that the Oklahoma program allows the allegedly unlawful injections by Defendants. In particular, he contends that the injection wells Overholt used were “commercial disposal wells,” which, in his view, could properly accept the injected chemicals. 

44Attaluri’s brief-in-chief asserts (incorrectly, as we shall point out) that the following definition appears in the Oklahoma regulations at OAC 165:10-1-2: 

45″Commercial disposal well” is one that: (a) is operated primarily for profit from the disposal of saltwater and/or other deleterious substances for a fee; and (b) disposes of saltwater and other deleterious substances transported by truck to the facilities used in conjunction with said disposal well or is a disposal well for which none of its owners is an owner in any of the oil and gas wells which produce the saltwater and/or other deleterious substances which will be disposed into said disposal well. 

46Because the chemicals that a commercial disposal well may accept include “deleterious substances,” Attaluri infers that such a well can accept all deleterious substances. “[D]eleterious substances” are defined as “[a]ny chemical, salt water, oil field brine, waste oil, waste emulsified oil, basic sediment, mud, or injurious substance produced or used in the drilling, development, production, transportation, refining, and processing of oil, gas and/or brine mining.” OAC 165:10-1-2. Attaluri notes that Allied was in the business of recycling used oil, and that the Oklahoma regulations define “recycling” as “the reuse, processing, reclaiming, treating, neutralizing, or refining of materials and by-products into a product of beneficial use which, if discarded, would be deleterious substances.”OAC 165:10-1-2 (emphasis added). He concludes that because Allied was an oil recycler, the byproducts of the business were deleterious substances, which, by definition, could be injected into a commercial disposal well. 

47Based on this argument, Attaluri challenges the following jury instruction given at trial: 

48With reference to the conspiracy charged in Count 1, you are instructed that the government claims in Count 1 at page 7 that the defendants … conspired to violate or cause to be violated Title 42, United States Code, section 300h-2(b)(2), which provides that: 

49Any person who violates any requirement of an applicable underground injection control program … if such violation is willful, such person … 

50shall be guilty of an offense against the laws of the United States. 

51The applicable underground injection control program the government claims were violated are: 

52Title 40, Code of Federal Regulations, Part 144.11, which provides: Any underground injection, except into a well authorized by rule or except as authorized by permit … is prohibited. 

53And, Title 40, Code of Federal Regulations, Part 144.6(b)(1), which provides that Class II injection wells are classified as follows: 

54Wells which inject fluids … Which are brought to the surface in connection with natural gas storage operations, or conventional oil or natural gas production and may be commingled with waste waters from gas plants which are an integral part of production operations, unless those waters are classified as a hazardous waste at the time of injection. 

55He argues that the instruction improperly refers to federal regulations rather than to Oklahoma law, which he contends was less restrictive, and that the district court should have given the following tendered instruction: 

56The government has alleged that the defendants conspired to commit the crime of Wilful Injection of Liquid Waste Into a Class II Disposal Well without authority. The government must prove as to each defendant that he intended to break this law by agreeing to commit the following four (4) essential elements beyond a reasonable doubt: 

57(1) Injected or caused to be injected 

58(2) A non-permitted liquid waste 

59(3) Into a Class II disposal well in Oklahoma 

60(4) Without authority from the Oklahoma Corporation CommissionThe defendant must have wilfully agreed to commit each of the elements of the offense. [emphasis added] 

61Before addressing Attaluri’s arguments, we note the standard of review. The argument on appeal was not raised below. Attaluri points to nothing in the record, nor have we found anything, indicating an objection by any defendant to the instruction given by the court. As for the proposed instruction, it does not suggest that the Oklahoma regulations are more permissive than the federal regulations. Nor have we been directed to, or found, any indication in the record that anyone so argued in district court. Therefore, we review for plain error. See United States v. Fabiano, 169 F.3d 1299, 1302-03 (10th Cir.1999) (failure to object to a given instruction, even when the defendant offers his own instruction, does not put the district court “clearly on notice as to the asserted inadequacy,” and thus plain-error review is appropriate). Following Johnson v. United States,520 U.S. 461, 466-67, 117 S.Ct. 1544, 137 L.Ed.2d 718 (1997), we have held: 

62Under [the plain-error] standard, [the appellant] must show: (1) an error, (2) that is plain, which means clear or obvious under current law, and (3) that affects substantial rights. If these three requirements are met, then we may exercise discretion to correct the error if it seriously affects the fairness, integrity, or public reputation of judicial proceedings. 1303 (internal quotation marks, citation, and brackets in original omitted). 

64The district court’s instruction defined the “applicable underground injection control program” as the prohibitions mandated in the EPA regulations, and it specifically incorporated the definition of a Class II well as expressing what could legally be injected into the wells at issue in this case. The given instruction informed the jury that Defendants violated the law if they injected into these wells anything but “fluids … [w]hich are brought to the surface in connection with natural gas storage operations, or conventional oil or natural gas production and may be commingled with wastewaters from gas plants which are an integral part of production operations, unless those waters are classified as a hazardous waste at the time of injection.” Although it may have been preferable for the ins

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