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Coatings Industry Wins CA Lead Fee Appeal

Tuesday, November 2, 2010

A California Court of Appeals panel has again denied Shell Oil’s attempt to shift millions of dollars in fees for lead prevention to the coatings industry.

At issue is the fee structure that supports California’s Childhood Lead Poisoning Prevention Program. The gasoline industry bears about 85% of those costs, and the coating industry carries 15%. Shell contended that the paint and coating industry “is mainly responsible for childhood lead poisoning” and thus should pay more.

Tax or Fee?

Equilon Enterprises LLC, doing business as Shell Oil Products, had sought a refund of the more than $3.9 million it paid for 2002 under the fee structure established by the Childhood Lead Poisoning Prevention Act of 1991. The oil company also sought a reallocation of the program’s cost that would shift more of the fee to the coatings industry.

Shell argued that the fee amounted to “an unconstitutional tax, because it does not bear a reasonable relationship to the industry’s responsibility for cases of childhood lead poisoning in California,” according to the appellate panel decision issued Friday (Oct. 29).

A trial court upheld the fee in 2008, concluding that it was a legitimate regulatory fee and not a tax.  The American Coatings Association joined the state of California in supporting the verdict of the trial court.

A Question of Proportion

Shell also contended that any fee should be proportional to the gasoline industry’s responsibility for cases of childhood lead poisoning, rather than its responsibility for environmental lead contamination.  The appellate panel disagreed, saying that the fee was constitutional as long as there was a reasonable basis for it.

“Here, there was a reasonable basis for the department to allocate the lead program fee in the manner it did, based on the gasoline industry’s responsibility for contaminating the environment with lead,” the panel ruled.

“The department was not obligated to allocate the fee based on responsibility only for those specific instances in which exposure to environmental lead contamination has actually resulted in childhood lead poisoning.”

Sinclair Paint Challenge

The program fees were previously challenged by the paint industry. In 1997, the Sinclair Paint Co. sought a refund of nearly $98,000 in fees it had paid to the program.

In that case, the legality of the fees was upheld, although the paint company received a refund because the appeals court said Sinclair had not had an opportunity to prove whether the amount it actually paid bore a reasonable relationship to the social or economic “burdens” that its operations generated.

The court said Sinclair “should be permitted to attempt to prove” any such contention at trial. 

Reasonable Basis

In the Shell ruling, the appellate panel said that the California Supreme Court decision in Sinclair Paint "supports our conclusion that the [social or economic] 'burden' the lead program addresses is environmental lead contamination, rather than just childhood lead poisoning."

California's Childhood Lead Poisoning Prevention Act of 1991 has assessed fees of approximately $18 million a year on the petroleum and coatings industries over the past 12 years to underwrite the costs of running the state's lead poisoning prevention program, according to ACA.

Comment from Catherine of Eco-Strip, (12/5/2010, 5:50 PM)

Using fees for organizations who ignore known dangerous health risks to pay for public education on prevention is a good way to go. The more consumers on any level are informed with facts, the more "Buyer beware" will work.