OFFICE OF 'I'HE DISTRICT PROSECUTOR SOUTH COAST AIK QUALITY MANAGEMENT DISTRIC'I' DISTRICT PROSECU'IOR NANCY S.

FELDMAN, State Bar No. I 25610 SENIOR DEPUTY DISTRICT PKOSECU'I'OK JOSEPI4 M. PANASITI, State Bar No. 090090 SENlOR DEPUTY IIISTRIC'I' PROSECUTOR TERESA R , BARREKA, State Bar No. 130700 2 1865 Copley Drive Diamond Bar, California 9 1765 'I'el: 909.396.3400 * Fax: 909.396.296 1
7 Attorneys for Plaintiff
8

SUPERIOR COUKT OF CALIFOKNIA

I
Plaintiff,
VS.

COUNTY OF LOS ANGELES'

PEOPLE OF TIIE STATE 0 1 : CALIFORNIA 13 re/ SOUTI-ICOAST AIR QUALITY MANAGEMENT DISTRICT, a I'ublic Entity,

Case No. RC.162571 [Consolidated with RC462693J

MEMORANDUM OF I'OINTS AND AU'I'HORI-I'I ES IN SUP OF MOTION FOR PRELIMINARY INJUNCTlON

DA'I'E: November 1 5,20 12 TIME: 8:30 a.m. PLACE: Dcpt. IS

HOME DEPOT IJ,S.A., INC., a Delaware Corporation, CUSTOM BUILIIING PKODUCTS, lNC., a Delaware Corporation; and DOES 1 through 50, Inclusive,

AND CONSOLIDATED CASE:

PEOP1,E OF TI IE STATE OF CAI,IFORNIA v. HOME DEPOT U.S.A.. INC.. et al.

C[~mplaint Filed: Judge : Depr. : 7'rial Date:

June 2,20 1 1 Hon. Richard Fruin 15 May 20,20 1 3

MEMORANDUM OF POIN'I'S AND AUTIIORITIES IN SUPPORT OF M'TN FOR PWLIMINARY INJUNCTION

TABLE OF CONTENTS

I.

STATEMENT OF FACTS ................................................................................................. 2

A

Background Information Regarding Air Pollution Control .................................... 2

District Rule 11 13................................................................................................... 3

B.

D.
E. F.

Background re Home Depot ................................................................................... 5

Previously Alleged Violations of Rule I 1 13 .........................................................5

Home Depot Recently Violated Rulc 11 13 and Kcfuses to Provide Information Demonstrating Adequate Corrective Actions or Current Compliance .........................................................................................................
'

G.
I11.

Home Depot I-las Not Implemented Adequate Procedures to Comply 10 with Rules 11 13 and 314 ......................................................................................

ARGUMENT .................................................................................................................... 12
A.

The Standard for Issuing a Preliminary Injunction ............................................... 12

A Preliminary Injunction Should Issue to Prohibit Home Depot from Violating Rule 1 1 13 .............................................................................................. 12

B.

C.

A Preliminary Injunction Should Issue to Prohibit Home Depot from Violating Rule 3 14................................................................................................ 15

MEMORANDUM OF POINTS AND AUI'I. IOKITIES 1N SUPPORT OF MTN FOR PRELIMINARY INJUNCTION

TABLE OF AUTHORITIES
Cases

4merican Coatings Association v. Sor4th L'ousr Air Quulity Management Disr. (201 2) 54 Cal. 4th 446 ................,.................. ..............;...................,............................,.........3

rT Corp. v. Coinry oflntperial (1 983) 35 Cal.3d 63 .............................................................................................................. 12

Federal Authorities

12. U.S.C. $ 7401 c t seq ........................................................................................... 3

59 Fcd.Reg. 23,858 (April 30, 2004) ........................................................................................ ...........3

Dther Authorities

:Hall ct al., The B e n e j ~ s o f Meeting Fedcraf Clean Air Sfandcards in the South Coust and Sun Joaquin Valjey Air Basins at 80 (Iliov. 2008), available at http://wuw.aqmd.govlnews 1/20081JancHallStudy2008 .pdf ........ ..................................,....3
Xu 1es

listrict Rule 1 1 13 ................................................,...,.....,.....,..,...,.........,.....,.,,..........,.,..,,~.p assim

Iistrict Rule 3 14................. .............,.....................,...............,..,..,...,,.,.........................,.......passim

listrict Kulc 303 ......................... ..............
Statutes

. . .. .. . .1 3
.... . .. . ... .. ... .. . .. . .. .. .. ... ......... .. 10

Zvidence Code $ 9 1 2 .............. ........,....................

iealth & Safety Code 4000 1 (a) ......................................

. . . . . . . .3
13

lealth & Safety Code 4 4151 3 .....................................................................................12

4ealth & Safety Code 42350 et seq .....,................................................ . . . . . . .. ..
a

Jealth & Safety Code 5 42359 ...............................

4ealrh & Safety Code 5 42402 .......................................

,.,...... ,.......................... .
,

. . . . . .. .. 13 .. ... ...
12
12

.............,..,..,..,...+. ...,.............................12
,

iealth & Safety Code $ 42402.1 ......................................... . . .. . . . ,. . ,.

Iealth & Safety Code 8 42402.2 ..................... ; .............. . .......................... .

. . . . . . ..

..
MEMORANDUM OF POINTS AND AUTHORITIES M SUPPORT OF MTN FOR PKEI,IMlNARY MJUNCTION

MEMORANDUM OF POINTS AND AUTHORITIES

1.

INTRODUCTION

The People of the State of California cJxre1 South Coast Air Quality Management District
["District") seeks a preliminary injunction to prohibit Defendant 'lhc Home Depot USA, Inc.

("THD" or "Home Depot") from viulating District Rule 1 1 13 ("Rule 1 1 13") by continuing to offer
for sale or selling architectural coatings that cannot be legally sold in the South Coast Basin

:hereafter referred to as "illegal coatings". In addition, the District also seeks a preliminary injunction to prohibit TfJD from violating District Rule 314 ("Kulc 3 14") with respect to the
+eportingof sales of architectural coatings.
A preliminary injunction is necessary becausu despite years of being on notice about the

xquirements of Rule 11 1 3, the issuance of multiple Notices of Violations

to THD between 2004

md 2010, and thc filing of a civil lawsuit more than a year ago, THD continues to supply and sell
llcgal architectural coatings in violation of District Rule 1 1 13. In particular, in April and May of .his year -- ten months after the filing of the initial Complaint in this case -- District inspectors saw
adlor purchased multiple containers of an illegal architectural coating, Enrich N Scal, at numerous

rHD stores and via the internet. Since then, despitc the District's rcquest, I'HD has failed to
3rovide adequate assurances that its proccdurcs and practices arc sufficient to prevent continuing

iriolations. Indeed, when counsel for the District recently sought to question THD's Person Most 2ualified C'PMQ") about the circumstances surrounding the sale of the illegal Enrich N Seal
~roduct, TIlD's counsel instructed the witness not to

answer any questions on the grounds that all

~fthe witness's information was privileged as an attorney-client communication. THD's counsel

ssued this instruction even though the topic had been properly noticed and even though THD's

:ounsel had represented that the District would be permitted to question'the witness on this topic.
In addition to the offering for sale and sale of non-compliant products, depositions have
nevealed that THD has failed to develop adequate systems and procedures to comply with District

iule 3 14. I'hat rule requires THD to annually send n certified report of its architectural coating iales to its suppliers. THD's PMQ for 3 14 compliance (who is also the individual who prepares
m u a l 3 14 reports of sales of architectural coatings) testified that he had never read Rule 1 1 13,
- 1MEMORANDUM OF POIN'I'S A N D AUTIIORITIES N SUPPORT OF MTN FOR PRELIMINARY 1NJUNCTlON

even though that rule contains legal definitions necessary fbr the preparation of accurate report to
suppliers under Rule 3 14. In addition, TI-ID'SPMQ testified that he had never read Rule 314 untii
lust prior to his deposition. Finally, THD's PMQ testified that with

respect to 3 14 reports

jubrnitted to suppliers for the years 2008 through 20 1 I , THD used its oum unique definition of irchitectural coatings as any product sold in the TI ID Paint Department that is "spreadable." The
estirnony revealed that TI.ID did not track sales from other TI-ID departments such as the Flooring

Jepmment or the Building Materials Department, which also sell architectural coatings. Based on
his testimony oSl'HD, it is clear that 'I'HD's prior, untimely submitted 3 14 reports were inaccurate
ind in violation of Rule 3 14, and there is a strong probability that 'THD's next 3 14 report, due to its

;uppliers on Jmuary30, 2013, will also be incomplete and wholly inaccurate. The submission of
naccurate 3 14 reports by THD will then cause its suppliers to submit inaccurate reports to the
listrict, which not only could subject the suppliers to potential action by the

District, but also will

'rustrate the District's efforts to estimate VOC emissions in the South Coast Basin.
Clearly, prior informal settlements of the 2004 and 2006 violations, issuance of new

qotices of Violation in 2009 and 2010, and the bringing of a civil lawsuit in 201 1 have not iufficiently causcd 'TI-iD to stop its violation of District rules. A preliminary injunction is
lecessary to deter continuing violations of the law.
As set forth more particularly below, the evidence establishes that the District is likely to

revail on the merits of this litigation. Moreover, even though the District is not required to either
illege or prove harm in order to obtain an injunction, such irreparable harm is present in this case.

The emissions that result from the sale of illegal architectural coatings can never be re-captured.
I.
STATEMENT OF FACTS
A.
Background Information Regardine Air Pollution Control.

The federal Clean Air Act and California law mandatc extensive regulatory efforts to
mprove air quality in the South Coast Air Basin. Both sets of laws establish "ambient air qunlity

itandards" for certain pollutants. These standards set maximum pollution levels designed to protecl

jublic health. The federal Clean Air Act and California law also require the District to enact

MEMORANDUM OF POINTS AND AUIIIOKITIES IN SUPPORT OF MTN FOR PRELIMINARY INJUNWION

regulatory controls that will bring the Basin into attainment with those standards. (42 U.S.C.

740 1 et seq; Health & Safety Code. 4 4000 1, subd. (a).)

Ozone is a pollutant that exceeds the state and national ambient air quality standards in the District. (See 69 Fed.Reg. 23,858,23,859 (April 30,2003); scc also Amaricatl Coalings
.issociation v. Sourh Coust Air Qeruliijl hiunugenrent Uisi. (20 13 ) 54 Cal. 4th 446,454.) Ozone

tbrms when volatile organic compounds ("VOC's") react with oxides of nitrogen in the presence of
iunlight. Ozonc irritates the respiratory system, aggravates asthma, and leads to irreversible .

reductions in lung function. Its respiratory effects are particularly severe in children and the :Iderly. A recent study estimated that the economic cost of' these health impacts exceeds $480 nil lion annually in the Basin alone. (I-lall et al., 771e Benefits ofl2Iecring Federul CfeanAir
Ctandards itz the South Coast arld Salt Juaq uin Valley Air Blrsins at 80 (h'ov. 20081, availab1e at
~tt~:llww.aqmd.~ov/ne 1120081JaneIiallS ws tudy2008.pdf .)

The District estimates that architectural coatings generate approximately 23 tons per day of
VOC emissions. I'hcse emissions are equivalent to the emissions generated daily by approximately

1.5 million automobiles. Enlissions from architectural coatings are greater than the emissions from
.he entire refinery community, the furniture manufacturing industry, printing industry and

ierospace industry combined. Coatings are the singlc largcst source of VOCs that the District can
.egulate. (Declaration of Naveen Berry, 7 7-9 ["Berry Dec."].)

B.

DistrictRule1113.

The District adopted Rule 1 1 13 in 1977 to limit concentrations of VOCs in architectural

:oatings. The rule establishes VOC limits for many categories of architectural coatings and
;enerally prohibits the manufacture, supply, sale, and use of non-compliant coatings. The rule
anguage parallels both the national architectural coatings rule and the model rulelsuggested control

neasurc developed by the California Air ~eso-urces Board. (Berry Dcc. 7 9-10.) Architectural coatings are defined in RuIe 11 13, and include, but are not limited to, paints,
>rimers,sealers, wood finishes, lacquers, varnish, roof coatings, stains, wood preservatives. They

MEMORANDUM OF POINTS AND AU'I'HOKITIES IN SUPPORT OF MTN FOR PRELIMINARY INJUNCTION

'

are generally used to beautify, seal, utaterproof, preserve, or alter the color of surfaces to which

they are applied. (Berry Dec. 7 10.) Pursuant to Kulo 1 1 13(c)(l)', a person shall not supply, sell,
or offer for sale any architectural coating listed in the Table of Standards that contains VOCs in

excess of the corresponding VOC limit specified in the table.

C.

District Rule 311.

District Rule 3 14 is a reporting and fee rule for architectural coatings as defined in Rule
1 1 13. The rule was adopted for the purposes of: 1) improving the accuracy of District estimates

I
1

about the VOC emissions flowing from the salcs of architectural coatings; and 2) generating a revenue stream to fund the District's Rule 1 1 13 enforcement efforts. Enforcement of Rule I 1 13
was and is viewed as highly important because of the District's non-attainment status with the

National Ambient Air Quality Standard for ozone. (Berry Dec. 7 1 1.) Initially, the reporting requirements of Rule 3 14 applied only to manufacturers of

architectural coatings. Upon adoption. however, those manufacturers lodged immediate complaints
about their inability to accurately report their sales numbers in the District because of the limited

information available from Big Box Retailers likc '1.1-ID. As a result, the District quickly amended
Rule 3 14 to require Big Box Retailers to send annual, certified 3 14 reports to manufacturers listing
their sales for the prior calendar year. The reports were made due on January 30 of each year, with

the first report required by January 30, 2009. (Berry Dec. 7 12.)

THD participated in the District's rulemaking proccss when the amendment for Big Box

1 architectural coatings. (Ex. 4 to Berry Dec. ["The Home Depot has ability (and willingness) to I
Iprovide information to our suppliers on where their products are distributed and sold."])
The District has amended Rule 11 13 several times since its initial adoption in 1977. 'I'he prohibitions on sale and offering for sale arc currently found in subdivision (c)(l) of the rule as amended on June 3, 201 1. The prior version of the rule, m e n d e d on July 13,2007 contained these same prohibitions in subdivision (c)(2). (See Declaration of Karin Manwaring filed concurrently in suppon of Motion for Leave to File Supplement First Amended Complaint.)

Retailers was being considered. (Berry Dec. 7 13.) Moreover, in 2008, THD specifically

represented to the District that it would be capable of providing accurate salcs information about

I I
I

'

-4MEMORANDUM OF POINTS AND AUTHORITIES IN SUPPORT OF MTN FOR PRELIMINARY blJUNCTION

I

D .

Background re Home Depot.

Home Depot is the largest home improvemer~t retailer in the United States. In fiscal pear

20 1 I , its annual net sales were approximately $70.4 billion. (Ex. 1 to Declaration of l'cresa R.
Barrera ["Damera Dec."].) It owns and operates 23 1 stores in California and 1 14 stores in the
,

District. (Ex. 1-3 to Barrera Dec.)

In September 2004, the District issued Notice of Violation ("NOV") P44603 to TIID for

violation of District Rule 1 1 13. This NOV alleged that TI,ID sold non-compliant coatings with a
VOC content in excess of the rule limits. (Declaration of Robert Carson ["Carson Dec."],

7 4.)

In January 2006, the District issued another NOV (P44647) to TI-JDfor violation of District

Kule 1 1 13(c)(2). Once again, the NOV allcgcd that 'THE) sold non-compliant coatings with a VOC
:ontent in excess of the rule standards. 'I'his NOV was particularly egregious, because one of the

G a m e non-compliant coatings found in 2004 was found again at the same store in 2006. It did not
appear that TflD had taken any steps to remove the non-compliant product from its shelves.
:Carson Dec., 7 5.)

Both NOV P44603 and P44647 were informally resolved by TI-IDand its suppliers. (Ex. 4-

5 to Barrera Dec.) Home Depot's in-house legal counsel participated in the discussions concerning
iettlement of these NOVs. (Ex. 6 to Barrera Dec.) The settlement agreement for NOV P44603
was signed by

Bruce Nelson, a Vice President for Merchandising at tIome Depot. (Ex.4 to Barrerc

Dec.) At a minimum, these prior NOVs put I-iomeDepot on notice of that Rule 1 1 13 prohibits thc

of architectural coatings containing high VOCs. Despite the fact that Rule 1 1 I3 had been in

:xistcnce since 1977, these NOVs should hatrecaused Home Depot to develop systems, practices,

md procedures for complying with Kule 1 1.13. (Carson Dec. 7 6 . )

E.
Previously Alle~ed Violations of Rule 1113

~ e ~ i i in i September n ~ 2009 and continuing through April 201 0, the District conducted
Kule 1 1 13 compliance inspections,. which resulted in the discovery of numerous non-compliant

products. (Carson Dec., 7 7-12; McClung Dec,, 'l[ 4-8; Soltani Dec., 7 3-5.) In particular, the District inspectors found and purchased the following architectural coatings, all of which were non:ompliant with the VOC limits set forth in Kule 1 1 13: 1) Ak7a Nobel's Flood CWF-UV Clear -5MEMORANDUM OF POINTS AND AUTHORITIES IN SUPPORT OF MRI FOR PRELIMINARY INJUNCTION

Wood Finish for Fences, Decks & Siding, Cedar Tone; 2) Akzo Nobel's Flood CWF-UV Clear
Wood Finish for Fences, Decks & Siding, Natural Tone; 3) Akzo Nobel's Glidden Speedcote

Exterior 100% Acrylic Semi-Gloss G 1 2456-01 10 White; 4) Custom Building Products' TilcLab

Gloss Sealer & Finish; 5) Custom Building Products' 'fileLab Matte Sealer & Finish; 6) Deft's
#ICWFS-L, Clew Wood Finish, Semi Gloss Brushing Lacquer; 7) Deft's # I CWFSA-L Clear
Wood Finish, Satin Brushing Lacquer; 8) Henry's Aluminum Roof Coating #555; 9) Kilz' Sealer Primer Stainblocker; 10) Preserva's Preservnwood Penetrating Stain & Sealer 0 I 1 Clear No

Pigment ; 1 1) Kustoleum's Parks ProFinisher 350 VOC Oil Base Polyurethane for Floors Clear

Gloss; 12) Rustoleum's Parks ProFinisher 350 VOC Oil Base Polyurethane for Floors Clear Satin;
13) Rustoleum's Parks ProFinisher 350 VOC Oil Base Polyurethane for I:loors, Clear Semi Gloss;
and 14) UGL's Latex Base Drylok Masonry Waterproofer. (Carson Dec., 6 7-12; McClung Dec.,

14-8; Soltani Dec., 7 3-5.)'

When the District was conducting its inspections in 2009-2010, it notified TI-ID of its

violation of Rule 1 1 13. In particular, on December 2,2009, District Inspector Robert Carson

served NOV P55 127 on 'I'HD. (Carson Dec., 17.) On December 2, 2009, District Inspector
Bradley A. McClung served a separate NOV, P55872, on 'THD. (McClung Dec., 8a.) Finally, on

April 2 1,2010, District Inspector Ahrnad Soltani servcd NOV P55494. (Soltani Dec, 6.). AH
notices of violation were served via certified mail with return receipts requested and received.

(Carson Dec., 1 7 ; McClung Dec., 7 7 ; Soltani Dec., % 6 . )

The District also notified I'HD store management of the violations during the course of
many of the inspections. (Carson Dec., 7 1 1 ; McClung Dec.,

7 8b-e; Soltani Dec., 7 5.)

When such

With respect to two products, 'Tile I,ab Gloss Sealer & Finish and Tile Lab Matte Sealer & Finish, Home Depot contends that they were not architectural coatings, but instead were "floor waxes or polishes" regulated by the California Air Resources Board. The evidence does no1 ;upport this legal conclusion. More significantly, the claim is expressly contradicted by Home Depor's own admission that the products are, in fact, architectural coatings. In Home Depot's 3 14 reports provided to suppliers and to the District, Home Depot identifies both of these products a 5 architectural coatings that it has sold. (See Ex. 22 to Barrera Dcc., filed separately under seal. See also Ex. 70 to Barrera Dec. - Deposition of THD (Glasco) rLThe products on the 314 repon are m q good-faith try to list architectural coatings for 3 14."])

'

MEMORANDUM OF POIN'I'S AND AUTHORITIES 1N SUPPORT OF MTN FOR PRELIMINARY INJUNCTION

I
1

contact was made, the inspectors identified the nun-compliant product found in their store. In
addition, the inspectors admonished and advised the managers of their obligation to comply with
District rules, the need to remove non-compliant product from their shelves, and the need to contact

their corporate headquarters in case other stores were selling and offering for sale similar nuncompliant products. (Carson Dec., 7 1 1; McClung Dec., 18b-e; Soltani Dec.,

7 5.)
,

The District provided additional details of the violations to 'I'HD's Office of Regulatory

Compliance in March and April. 201 0. In particular, on April 27, 20 10, the District sent TFfD's Environmental Regulatory Compliance Specialist Michelle O'Hrien with a list of non-compliant

I
1I1
I

products purchased by the District. (Declaration of David I'leRoer ("DeBoer Dec.")7 6.) Mr,

1 VeBuer told Ms. O'Brien that "It

is highly suggested that Home Depot initiate an inventory rcvicw

of all coating products offered for sale and use in the SCAQMD as they relate to Kule 11 13." (Ex.

Based on the inspectors' purchases of nun-compliant product at Home Depot, the District
has endeavored to obtain sales numbers associated with those products. This information is

necessary to determine the total number of salcs violations at issue in this case. The exercise,

w~hich has been on-going for months, should be fairly simple. Sales of products are trackcd by all
rctail businesses. Moreover, at minimum, by 2008 I-Iome Depot knew it had an obligation under

II

Rule 314 to track and repon its sales of architecturn1 coatings, Investigation and discovery has
revealed, however, that complete and accurate salcs numbers may prove extremely difficult to

obtain because:

THD assigned single SKU numbers to multiple VOC formulations of the s m e product
andlor multiple UPCs (Ex. 8- 1 1 to Barrerrt Dec.);
Non-compliant coatings were sold undcr "Clearance SKUs" for which THD?hasnot

been able to provide sales data. (McClung Dec. % 8a; Barrera Dec. 126; Ex 16, 18 to
Barrera Uec.);

Non-compliant coatings were sold undcr SKUs assigned to different products (McClung

Dec. 7 8d; Carson Dec. 7 9.);

'THD sales figures are "net" figures. (Ex. 12 to Barrera Dec.j;

-7MEMORANDUM OF POINTS AND AUTHORlTIES IN SUPPORT OF MTN FOR PRE1,IMINARY INJUNCTION

THT) claims it cannot produce any sales numbers prior to 2008 because that information
would require restoration of back-up tapes involving "hundreds of hours, among numerous Home Depot employees." (Ex. 13 to Barrera Pec.)
With the caveat that complete and accurate numbers probably may be extremely difficult to

~btain, reports from Home Depot with respect to these products reveals that Home Depot soid
thousands of containers of non-compliant product. (Barrew Dcc. B 14-35; Exhibits 14-36 to
3arrera Dec.) Based on the systemic problcms and limited information discussed above, however,

.he full extent of TI-ID'S non-compliance is probably far great,er. Despite the ample notice and evidence of non-compliance found in 2009-20 10, THD failed
o develop adequate practices and procedures to ensure complianct. with Rule I 1 13. This i s best

:xemplified by the District's recent discovery of new violations of Kule 1 1 13, which arc discussed urther beloitt.

F.

Home Depot Recently Violated Rule 11 13 and Refuses to Provide Information

demon st rat in^ Adequate Corrective Act ions o r Currcnt Compliance.

On April 23,20 1 2, thc District received a complaint that TI ID was selling a non-compliant

~rchitectural coating at its stores in the District. In response to this complaint, District inspectors :onducted inspections at 42 'I'HII stores. These inspections resulted in District purchases of
mother illegal architectural coating (1 12 gallon containers of Aqua Mix Enrich N Seal) at 9 stores.

n addition, THD's website allowed inspectors to order this illegal product on the internet fbr
k k u p at District stores. (McClung Dec. fi 9-14.)
Following discovery of these new violations, counsel for the District telephonically advised

:aunsel for 'I'HD of the inspection results, providing them with the name of the illegal product,
lurchase locations, and notice that the illegal product had been ordered over the internet. (Barrera

kc. 7 7.) TIID was asked to immediately remove the product from the District. Counsel for THD
rpresented that appropriate steps would be taken and he would follow up with the District
egarding corrective actions. (Barrera Dec. t 36.) The District mailed Notice of Violation P55888
o THD's counsel on

June 5,2012. (Ex. 3 to McClung Dec,)

-I,-

MEMORANDIJM OF POMTS A N D AUTHORITIES IN SUPPOK'I' OF M'IU FOR PRELIMINARY INJUNCTION

When no follow up communications were received from THD, counsel for the District
wrote to 'I'tiD on July 27, 2012 to demand information by August 3, 2012. (Ex. 37 to Barrera

Dec.) On August 3, 201 2, THD requested an extension of time to respond to August 29,2012,

claiming it had insufficient information to respond. (Ex. 38 to Barrera Dcc.) THD made this claim
despite the.fact that for two months it had atready known thc name and size of the product and the
store locations where it had been purchased. 'I'he District granted THD' s request and voluntarily

produced the then recently-completed inspection reports pertaining to Enrich N Seal. (Ex. 39 to

Barrera Dec.)
On August 31,2012, THD's counsel responded in writing to thc District's request for information, claiming THD "specifically blocked the hall'gallon containers from being ordered by District area stores," but in the Fall of 201 1, the product had been "inadvertently shipped to TI I D stores in the District. THD claimed the mistake was corrected in December 20 1 1. With respect to
the internet sales, I-TomeDepot expressed "surprisc" and claimed it should not have been able to

happen. (Ex. 40 to Barrera Dac.)

TI 1 D failed to cxplain how inspectors could purchase the product, despite its claim that a
SKU blocking system should have prevented the sales. TI ID also failed to provide any explanation
&boutthe scope of the problem, including. but not limited to, sales figures for the illegal product
and the total number of stores that ~upposcdly received the "inadvertent" delivery. Further, THD

failed to explain why shelves in its District stores contained labels and assigned shelf space for this
illegal product, months after it had allegedly been recalled. (Ex. 40 to Barrera Dec.)
When counsel for the District followed up with TIID on thcsc deficiencies, counsel for

I'HI) represented that the District could pose its questions at the ncxt scheduled deposition of
THD's PMQ September I I and 12,20 12. (Barera Dec. 7 42.) However, when the District

attempted to ask those questions, counsel for THD claimed & I information possessed by the PMQ witness with regard to the illegal Enrich N Seal producc was privileged as an attorney-client communication. THD's counsel instructed the witness to not answer the District's questions.
(Barrera Dec. 143; Ex. 41 to Barrera Dec.) This instruction was given even though any privilege

for attorney client communications about the product had been waived by counsel's August 3 1, -9MEMORANDUM OF POMTS AND AUTHORITIES IN SUPPOR'I' 0 1 : MTN FOR PRELIMWARY INJUNCTION

2012 letter (Ex. 40 to Bwera Dec.), which made multiple detailed representations in response to

the District's allegations. (See Cal. Evid. C. 5 912 ["Except as otherwise provided in this section,

the right of any person to claim a privilege provided by Section 954 (lawyer-client privilege) . . . is
waived with xspect to a communication protected by the privilege if any holder of the privilcgc,

without coercion, has disclosed a significant part of the communication or has consented to disclosure made by anyone."].)3
When counsel for the District then sought information the following week from the TI.ID

PMQ designated as the person most qualified to testify about sales of architectural coatings, the
deponent testified that he lacked information regarding the sale of that product. (Barrera Dec. 7 45;
Ex. 42 to Barrera Dec,)

G.

Home Depot Has Not Implemented Adequate Procedures to Comply with Rules
1113 and 314.

Despite many years of being on notice about the requirements of Rule 1 113, Home Depot

merchants who were purchasing architectural coatings for Home Depot did not become aware of

.he rulc until March-April 2010. (Ex. 43-44 to Barrera Dec.) 'I'his was the first tiqe that they
segan expressly addressing compliancc with Rulc 1 1 1 3 with their suppliers. (Ex. 45-46 to Barrera
Dec.) Prior to this time, I'HD had simp1y re1ied upon a geneml requirement in its Supplier Buying

Agreement that all suppliers must comply with "applicable federal, statu, provincial, and local
laws, codes, ordinances, rules, and regulations." (Ex. 47-48 to Barrera Dec.) THD chose to rely
3n suppliers even though it knew suppliers had failed to comply with Rule 1 1 13 in 2004 and 2006.

:Carson Dec. 14-5.) TI,IDPMQ depositions have revealed that THD only recently began to develop practices
and procedures for compliance with Rule 1 1 13. In particular, I'CID did not implement a system for

tracking the VOCs in architectural coatings until Spring 201 1. (Ex. 49 to Bmera Dec.) This
system requires suppliers to upload into Home Depot's computer system the Rule 1 1 13 category

' The District and/or thc Local Prosecutors anticipate filing a Motion to Cornpei on this and other
issues.

- 10MEMORANDUM OF POINTS AND AUTHORITIES W SUPPORT OF MTN FOR PKE~.IIMWARY INJUNCTION

snd VOC level of a product. (Ex. 50 to Harrera Dec.) 'I'hc system continues to rely upon the

suppliers, with no independent evaluation (even on a spat check basis) of the accuracy of the information regarding the Rule I 1 I3 category or whether a product is an architectural coating. (Ex.

I-IomeDepot's practices and procedures are also dcficicnt bccause it refuses to provide any

.raining on Rule 1 1 13 to any store omploycc. (Ex. 52-53 to Barrera Dcc.) Such training is
lecessary so that, at the very least, these employees understand that architectural coatings are qegulated and they cannot automatically assume all can be sold in the District. Thus, if there is a

nis-delivery of an uncxpected,illegal product, someone in the store should bc aware that some sort

,f follow up is necessary.

Testimony from a recent TI.ID PMQ reveals that TI ID'S practices and procedures for
:omplying with Rule 3 14 are also wholly deficient, First, the THD employee charged with
*esponsi bil ity for completing THD's annual 3 14 report has never read Rule 1 I 13 nor is he aware of

.he legal definition of an architectural coating. (Ex. 54 to Barrera Dec.) Likewise, the Tl ID
:mployee charged with responsibility for completing THD's annual 3 14 report had never read Rule

3 14 until just prior to his deposition. (Ex. 55 to Barrera Dec.) Likewise, I-Iome Depot has no lnderstanding of the rule's purpose. (Ex. 56 to Uarrera Dcc.)
Second, in preparing the annual 3 14 report, 'l'H1) has been using i t s own unique definition

]fan architectural coating as a "sprcadable" product found in the Paint Department. (Ex. 57-59 to
Bmera Dcc.) This unique definition is not found within Rule I 113, md excludes architectural :oatings sold by other departments. Consequently, the reports submitted by Home Depot are .naccurate. For example, with the exception of one flooring department supplier (Henry
Zompany), I.lorne Depot does not produce or provide Rule 3 14 reports for arty suppliers that sell

irchitectural coatings outside of the Paint Department. (Ex. 60-61 to Barrera Dec.) Moreover,
dome Depot only submitted a report for I.lenry for calendar y m r 20 1 I . (Ex. 62 to Barrera Dec.)

Home Depot has never asked its suppliers to provide it with a list of what the suppliers consider to
3e

architectural coatings. (Ex. 63 to Barrera Dec.)

- 1 1MEMORANDUM OF POINTS AND AUTHORlTlES IN SUPPORT OF MTN FOR PRE1,IMINARY INJUNCTION

Third, Home Depot reports for 3008-20 10 were all submitted to suppliers on March 18,
201 1, well afier the deadlines set by the rule. (Ex. 19-36 (filed under seal) and 64-66 to Barrera
Dec.) Since supplying those reports, Home Depot has discovered mistakes in the reports.

However, no corrected reports have ever been created or produced. (Ex. 67,68 to Barrera Dec.)

111.

ARGUMENT
A.

The Standard for Issuing a Preliminan Iniunction.

California Health and Safety Code $ 41 5 I3 provides that when the People seek to enjoin

my violation of any prosision of Part 4 (including I Iealth & Safety Code sections 42402, 42402.1
lnd 42402.2) or any rule of any air quality district, it "shall not be required to allcge facts nccessarj
o show, or tending to show, lack of adequate remedy at law or irreparable damage or loss." Thus

he legislature has already made the determination that significant public harm will result and
njunctive relief is the most appropriate iffay to protcct against the harm caused by the violation

:Cf. IT Corp. v. County o f lmpericrl(1983) 35 Ca1.3d 63,69-7 1 .)

As a result of this prohibition, thc District is only required to demonstrate a likelihood of

;uccess on the merits. (Id.) Such success is highly probable given the existence of strict liability

:laims against THD.

B.
A Preliminaw Iniunction Should Issue to Prohibit Home Denot from Violating

Rule 1113.
A preliminary injunction is ncccssary to ensure compliance with Rule 1 1 13 going forward.

31aintiff's complaint against THD alleges multiple causes of action involving violation of District

Cule I 1 13. Although the Fourth and Fifth Causes of Action against THD contain a scienter

+equirementassociated with the sale of non-compliant architectural coatings, the First and Sixth
3auses of Actions are bascd on strict liability. Testimony by District inspectors, along with THD's
I W

admissions regarding the sale of non-compliant producl, clearly establishes that the District

#ill prevail, at a minimum, on these strict liability claims.

Even though the District is not required to allcge any harm from these violations, such harm

loes, in fact, exist. First, and most signif cantly, once these illegztl products are used, the emissions
.hat are generated can never be re-cap~ured.The harm to the environment can never be undone.
- 131 L.-

MEMORANDUM OF POlNTS AND AUTHORITIES I N SUPPORT OF MTN FOR PRELIMINARY INJUNCTION

Second, Tf-IDis the largest retailer of'architectural coatings in the District. It h& approximately
1 14 storcs in the District. When it fails to comply with the law, its fkilure is necessarily magnified
because of its size. Third, Rulc 1 1 13 also prohibits thc use and application of illegal architectural

~oatings,Thus, when THD sells illegal architectural coatings, it puts its customers in the untenable position of violating Rulc I I 13. Finally, when TI-IDsells non-compliant architectural coatings, it obtains an economic
didv vantage over other retailers of architectural coatings and other facilities which are subject to

District rules. With respect to othcr retailers, they are incurring costs associated with the .mplementation of practices and procedures necessary to cumply with District regulations, including the providing of training to their t.mploy~.cs.Home Depot, in contrast. is avoiding thcse
:osts and is instead profiting from the sales of illcgal products.

With respect to other facilities which arc subject to District rules, THD is gaining another
ype of economic advantage. In particular? every air district has a variance procedure by which a

'acility can seek advance permission to violate a District rule. (IIealth & Safcty Code 4 42350 et
jeq.) When this procedure is utilized, conditions can be imposed by the District's Hearing Board to

imit the harm caused by the violation. (1-lealth& Safcty Code tj 42359.) The facility seeking a

~ariance is also required to pay fees to the I-IearingBoard based on the amount of excess emissions
generated by their violation of District rules. 'I'he minimum excess daily excess emissions fee due
n these circumstances is $168.67 per day per l o c a t i ~ n . Those ~ fces add up quickly and serve as an

ncentive for facilities to quickly come into complimce. If 1'1-IDsought advance permission to sell
:oatings in violation of Rule 1 113 at all I I4 of its storcs in the District, and if they could have

nade the requisite Iegal showing, i t would have been subject to conditions that would have resulted
n othcr costs to its business and it would have had to pay more than $7 million in excess emission

kes for just 365 days of violation. Since TI ID was not a good corporate citizen in comparison to

.he facilities that seek out variances, it has thus far been able to avoid all of these expenses. In

' Rule 303 provides:

"'l'hc excess emission fee remitted, regardless of calculations, shall be no less .han $1 68.67 for each day on which the excess emissions occur or are expected to occur at each facility luring the variance period, unless otherwise ordered by the Hearing Board." (Ex.69 to Barrera Dcc.)
*

MEMORANDUM OF POINTS A N D AUTIIORITIES IN SUPPORT OF MTN FOR PRELIMLNARY INJUNC'I'ION

sum, it is simply unfair lbr 'I'HD, ivith its 1 I4 locations, to benefit so greatly by its violation of
District rulcs.

Ultimately, issuance of a preliminary injunction is necessary to compel TI ID to comply

with the law. THD continues to violate Rule 11 13 and the cvidcncc establishes that it will only

make required changes to comply with the law if fbrccd to do so. When THD was issued Notices

of Violation in 2004 for a specific product, it failed to take sufficient corrective actions and the
same product was discovcrcd again at the same store almost two years later. (See Carson Dec. 1 4 -

5.)
Despite being on notice of Rule I I 13 and its inability to rely on suppliers for compliance,

THD still failed to institute sufficient practices or procedures such that in 2009 and 20 10, the
District again discovered that THD was continuing to sell numerous non-compliant products. Indeed. recent deposition testimony by 'I1 ID rcvcals that its buyers of architectural coatings (AKA "merchants") and regulatory compliancc personnel did not specifically know about Rule 11 13 until April of 20 10, and they did not require suppliers to specifically provide VOC information until Spring of 20 11. (Ex 43-46 to Banera Dec.) Even today, TI lD refuses to train any of its store
~.mpIoyecs on Rule I 1 13 issues, including but not limited to the handling of non-compliant returns;
the handling of older architectural coatings that c m o t bc sold due to the expiration of a sell

through period; and the need to recognize lhat architectural coatings are regulated products. (Ex.
52-53 to Barrera Dec.)

Based on the foregoing, the Ilistrict i s asking this Court to prohibit 1'HD from; 1) Offering

Tor sale or selling any architectural coating in violation of South Coast Air Quality Management
Rule 1 1 13; 2) Using a clearance SKU to sell any Rule 1 1 13 non-compliant architectural coating;

When faciIitics fail to seek out this advance permission, and instead simply seek to violate the rules, the total penalties uitimately imposed for those violations necessarily must be higher than thc Rule 303 excess emission fees simply because the District needs to de-incentivize any willingnes: to break District rules. Violators cannot pay penalties which arc less than the emissions fees whict they would have had to pay had they sought a variance, Thus, in this case, where the period 01 violation far exceeds one year, the District anticipates that a very substantial penalty will be needed md can be justified to punish THD and to ensure its future compliance with Kule 1 1 13.
- 14MEMORANDUM OF POINTS AND AUTHORITIES I N SUPPORT OF MTN FOR PRE1,IMINARY INJUNCTION

and 3) Using a substitute SKU to sell any Rule 1 1 13 non-compliant architectural coating. ( A
Proposed Order has been concurrcntl>*filed with thc Court.)
C.
A Preliminam Injunction Should Issue to Prohibit Home Depot from Violating

Rule 3 14.
A preliminary injunction is also necessary to ensure compliance with Rule 3 14. Thc

District i s likely to prevail on thc merits with rcspcct to the Seventh Cause of Action alleging a strict liability violation of Rule 3 1 LC. '1.h~ cvidcnce is clear that Tl ID did not submit the required 2008-20 I0 reports to suppliers until March 18,201 I . (See copies of 3 14 Reports, filed separately,

under seal.) Moreover, the District hns since lcarncd through depositions that these reports were
inaccurate. Based on testimony by 'l'1,ID's PMQ, it appears thcrc is a high probability that the 2012
report due on Janwary 30, 20 13 itpillalso be inaccurate.

Once again, even though the District is not required to establish harm, such harm does exist.
[naccuratc reports fiom the District's largest retailer of architectural coatings

frustrate the overall

purpose of the rule and simply cannot be tolcratcd. Such inaccuracies will cause manufacturers to

prepare and submit inaccurate reports. In turn, thc District will nut be able to accurately asstss the
VOC emissions inventory in the District.

Based on the foregoing, the District is asking this Coun to issue a preliminary injunction ?rohibiting 'I'tID from violating District Rule 3 14. (A Proposed Order has been filed with the

IV.

CONCLUSION

Based on the foregoing, Plaintiff seeks a preliminary injunction prohibiting THL) from {iolating Rules 1 1 13 and 3 14. Such an order i s appropriate because I'HD has been on notice of
.hesc rules for years, yet it continues to violate the law. Moreover, THD fails to accept

-esponsibility for its actions. A strung mcssagc of deterrence is necessary.

DATED: October 9.20 12

SOUTH COAST AIR QUALITY

By:
TE&SA'R.BARKERA Senior Denutv District Prosecutor
- n d

MEMOKANDUM OF POIN'I'S AN11 AU'S~~OKITIES IN SUPPOK'I' OF M T N FOR PWLIMINAKY INJUNCTION