AQMD Motion Against Home Depot

7/28/2019 AQMD Motion Against Home Depot

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OFFICE OF 'I'HE DISTRICT PROSECUTORSOUTH COAST AIK QUALITY MANAGEMENT DISTRIC'I'DISTRICT PROSECU'IORNANCY S. FELDMAN, State Bar No. 25610SENIOR DEPUTY DISTRICT PKOSECU'I'OKJOSEPI4 M. PANASITI, State Bar No. 090090SENlOR DEPUTY IIISTRIC'I' PROSECUTORTERESA R , BARREKA, State Bar No. 1307002 1865 Copley DriveDiamond Bar, California 91765'I'el: 909.396.3400 * Fax: 909.396.296 1

I COUNTY OF LOS ANG E L E S '78

PEOPLE OF TIIE STATE01: ALIFORNIA 13re/ SOUTI-ICOAST AIR QUALITYMANAGEMENT DISTRICT, a I'ublic Entity,

Attorneys for PlaintiffSUPERIOR COUKT O F CALIFOKNIA

Plaintiff,VS .

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

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

Case No. RC.162571[Consolidated wi th RC462693MEMORANDUM OF I'OINTSANDAU'I'HORI-I'I S IN SUP OFMOTION FOR PRELIMINARYINJUNCTlONDA'I'E: November 15,20 12TIME: 8:30 a.m.PLACE: Dcpt. IS

C[~mplaint iled: June 2 , 2 0 1Judge: Hon. Richard FruinDepr.: 157'rial Date: May 20 , 20 13

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TABLE OF CONTENTS

I . STATEMENT OF FACTS ..................................................................................................................................... Background Information Regarding Air Pollution Control 2

B. District Rule 1113 ..................................................................................................

D Background re Home Depot ............................................................................................................................................. Previously Alleged Violations of Rule I 113 5

F. Home Depot Recently Violated Rulc 1113 and Kcfuses to ProvideInformation Demonstrating Adequate Corrective Actions or Current 'Compliance ......................................................................................................... 8G Home Depot I-las Not Implemented Adequate Procedures to Complywith Rules 1 1 13 and 314 10.....................................................................................

.11 ARGUMENT ....................................................................................................................2A . The Standard for Issuing a Preliminary Injunction ...............................................2B . A Preliminary Injunction Should Issue to Prohibit Home Depot from..............................................................................................iolating Rule 1 1 13 12C A Preliminary Injunction Should Issue to Prohibit Home Depot from................................................................................................iolating Rule 3 14 15

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TABLE OF AUTHORITIESCases4merican CoatingsAssociation v . Sor4th L'ousr Air QuulityManagement Disr.(2012) 54 Cal. 4th 446 ........ ... ... ...... ... .......... .. .. ... ... ... .. .. .. ., . .. ... . ... ..... .... .... ....3rT Corp. v. Coinry oflntperial(1 983) 35 Cal.3d 63 ..............................................................................................................2

Federal Authorities12.U.S.C. $ 7401 c t seq ...........................................................................................59 Fcd.Reg. 23,858 (April 30, 2004) ..................................................................................................3Dther Authorities:Hall ct al., The B e n e j ~ sf Meeting Fedcraf Clean Air Sfandcards in the South Coustand Sun Joaquin Valjey Air Basins at 80 (Iliov. 2008), available athttp://wuw.aqmd.govlnews 20081JancHallStudy2008 .pdf........... . ... .. ...... ... ........, ...3Xu1eslistrict Rule 1 113 . . . . . . . . . . . . . .. . . . . . . . . . . . . . .. . . . . . . . . . . . . . .. . . . , . . . , . . . . . ,. . . . . , . . , . . . , . .. . . . . . . , . . . . . , ., , . . . . . . . . . . , . ,. . , ,~.pssimIistrict Rule 3 14......... .. ..... ... .. .. ........... ... ... ., . .. .. ..... .. .. .. ,. .. .. . ... .. ... .....,.. . . .p ssimlistrict Kulc 303 . . .. .. .. . .. .. .... .. ... .... . . .. . .1 3StatutesZvidence Code $ 912 ...... .. .... ... ... .. .. .... .. .. . .... . .. . . . .. . . .. . .. . .. .. .. . . .. . . . . . . .. 10iealth & Safety Code 4000 1(a) ......................................... . . . .lealth & Safety Code 4 41513 ..................................................................................... 24ealth & Safety Code 42350 et seq ..... ..................... .. .. .. .. .. .. .. .. .. .. .. .. . . . . . . . . . 13Jealth & Safety Code 5 42359 ............................... ,.,................................. . . . . . . . 134ealrh & Safety Code 5 42402 ....................................... , ............,..,..,..,...+...,.............................12iealth & Safety Code $ 42402.1 .......... ... .. .. .... .. .. .. .. .. . . .. . . . ,. . ,. , . . . . . . 12Iealth & Safety Code 8 42402.2 .....................;....................................... . . . . . . . 12

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MEMORANDUM OF POINTS A N D AUTHORITIES1. INTRODUCTION

The People of the State of California cJxre1 South Coast Air Quality M anagement D istrict["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 offerfor sale or selling architectural coatings that cannot be legally sold in the South Coast Basin:hereafter referred to as "illegal coatings". I n addition, the District also seeks a preliminaryinjunction to prohibit TfJD from violating D istrict Rule 31 4 ("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 thexquirements of Rule 1113, the issuance of multiple Notices of Violations to THD between 2004md 2010, an d th c filing of a civil lawsuit more than a year ago, THD continues to supply and sellllcgal 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 sa wadlor purchased multiple containers of an illegal architectural coating, Enrich N Scal, at numerousrHD storesand via the internet. Since then, despitc the District's rcquest, I 'HD has failed to3rovide adequate assurances that its proccdurcs and practices arc sufficient to prevent continuingiriolations. Indeed, when counsel for the District recently sought to question THD's Person Most2ualified C'PMQ") about the circumstances surroun ding the sale of the illegal Enrich N Seal~roduct, IlD's counsel instructed the witness not to answer any questions on the grounds that all~f he witness's information was privileged as an attorney-client communication. THD's counselssued this instruction even hough 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, depositionshavenevealed that THD has failed to develop adequate systems and procedures to comply with Districti u l e 3 14 . I'hat rule requires TH D to annually send n certified report of its architectural coatingiales to its suppliers. THD's P M Q for 3 14 compliance (who is also the individual who preparesm u a l 3 14 reports of sales of architectural coatings) testified that he ha d never read Rule 1 1 13 ,

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even though that rule contains legal definitions necessary fbr the preparation of accurate report tosuppliers under R ule 3 14. In addition, TI-ID'SPM Q testified that he had never read Rule 314 untiilust prior to his deposition. Finally, THD's PM Q testified that with respect to 314 reportsjubrnitted to suppliers for the years 2008 through 20 1 I , THD used its oum unique definition ofirchitectural coatings as any product sold in the TI ID Paint Department that is "spreadable." Theestirnony revealed that TI.ID did not track sales from other TI-ID departments such as th e FlooringJepmment or the Building Materials Department, which also sell architectural coatings. Based onhis testimony oSl'HD, it is clear that 'I'HD's prior, untimely submitted 3 14 reports were inaccuratein d in violation of Rule 3 14, and there is a strong probability that 'THD's next 3 14 report, due to its;upplierson Jmuary30, 2013, will also be incomplete an d wholly inaccurate. The submission ofnaccurate 3 14 reports by THD will then cause its suppliers to submit inaccurate reports to thel istrict, 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 th e South Coast Basin.

Clearly, prior informal settlements of the 2004 and 2006 violations, issuance of ne wqotices of Violation in 2009 an d 2010, an d the bringing of a civil lawsuit in 201 1 have notiufficiently causcd 'TI-iD to stop its violation of District rules. A preliminary injunction islecessary to deter continuing violations of th e law.

As set forth more particularly below , the evidence establishes that th e District is likely torevail on the merits of this litigation. Moreover, even though the District is not required to eitherillege or prove harm in order to obtain an injunction, such irreparable harm is present in this case.The emissions that result from th e sale of illegal architectural coatings can never be re-captured.I. STATEMENTOF FACTS

A. Background Information Regardine A ir Pollution Control.The federal Clean Air Act and California law mandatc extensive regulatory efforts to

mprove air quality in th e South Coast Air Basin. Both sets of laws establish "ambient air qunlityitandards" fo r certain pollutants. These standards se t maximum pollution levels designed to protecljublic health. The federal Clean Air Act an d California la w also require th e District to enact

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regulatory controls that will bring the Basin into attainment with those standards. (42 U.S.C. 4740 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 theDistrict. (See69 Fed.Reg. 23,858,23,859 (April 30,2003); scc also Amaricatl Coalings.issociation v. Sourh CoustAir Qeruliijl hiunugenrent Uisi. (20 13)54 Cal. 4th 446,454. ) Ozonetbrms when volatile organic compounds ("VOC's") react with oxides of nitrogen in the presence ofiunlight. Ozonc irritates the respiratory system, aggravates asthma, and leads to irreversible .reductions in lung function. Its respiratory effects are particularly severe in children an d the:Iderly. A recent study estimated that the economic cost of' these health impacts exceeds $480nil lion annually in the Basin alone. (I-lallet al., 771e Benefits ofl2IecringFederulCfeanAirCtandards it z the South Coast arld Salt Juaquin ValleyAir Blrsins at 80 (h'ov. 20081, avai ab1e at~ t t ~ : l l w w . a q m d . ~ o v / n e w s120081JaneIiallS tudy2008.pd f .)

The District estimates that architectural coating s generate approximately 23 tons per day ofVOC emissions. I'hcseemissions are equivalent to the emissions generated daily by approximately1.5 million automobiles. Enlissions from architectural coatings are greater than the emissions from.heentire refinery community, the furniture manufacturing industry, printing industry andierospace 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 c oatings. The ruleanguage parallels both the national architectural coatings rule and th e model rulelsuggested controlneasurc developed by the California Air ~ es o -u rces oard. (Berry Dcc. 7 9-10.)

Architectural coatings are defined in RuIe 1 1 13, and include, but are not limited to, paints,>rimers,sealers, woo d finishes, lacquers, varnish, roof coatings, stains, wood preservatives. They

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' are generally used to beautify, seal, utaterproof,preserve, or alter th e color of surfaces to whichthey are applied. (Berry Dec. 7 10.) Pursuant to Kulo 1 1 13(c)(l)' , a person shall no t supply, sell,or offer for sale any architectural coating listed in the Table of Standards that contains VOCs inexcess of the corresponding VOC limit specified in th e 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 th e accuracy of District es timatesabout the VOC emissions flowing from the salcs of architectural coatings; and 2) generating aI evenue stream to fund the District's Rule 1 113enforcement efforts. Enforcement of Rule I 113was and is viewed as highly important because of th e District's non-attainment status with th eNational Ambient Air Quality Standard for ozone. (Berry Dec. 7 1 1 )

1 Initially, the reporting requirements of Rule 3 14 applied only to m anufacturers of Iarchitectural coatings. Upon adoption. however, those manufacturers lodged immediate complaintsabout their inability to accurately report their sales numbers in the District because of the limitedinformation available from Big Box Retailers likc '1.1-ID. As a result, the District quickly amendedRule 314 to require Big Box Retailers to send annual, certified 3 14 reports to manufacturers listingtheir sales for the prior calendar year. The reports were made du e on January 30 of each year, withthe first report required by January 30, 2009. (Berry Dec. 7 12.)

THD participated in the District's rulemaking proccss when the amendment for Big Box1Retailers was being considered. (Berry Dec. 7 13.) Moreover, in 2008, TH D specifically IIepresented to the District that it would be capable of providing accurate salcs information about11 architectural coatings. (Ex. 4 to Berry Dec. ["The Home Depot has ability (and willingness) to IIprovide information to our suppliers on where their products are distributed and sold."]) I' The District has amended Rule 1113 several times since its initial adoption in 1977. 'I'heprohibitions on sale and offering for sale arc currently found in subdivision (c)(l) of the rule asamended on June 3, 201 1. The prior version of the rule, m e n d e d o n July 13,2007 contained thesesame prohibitions in subdivision (c)(2). (See Declaration of Karin Manwaring filed concurrently insuppon of Motion fo r Leave to File Supplement FirstAmended Complaint.)

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D. Background re Home Depot.Home Depot is the largest home improvemer~tetailer 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."].) I t owns an d operates 23 1 stores in California an d 1 14stores in the, ,District. (Ex. 1-3 to Barrera Dec.)

In September2004, the District issued Notice of Violation ("NOV") P44603 to TIID fo rviolation of District Rule 1 1 13. This NOV alleged that TI,ID sold non-compliant coatings with aVOC 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 DistrictKule 1 1 13(c)(2). Once again, the N O V 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 theGame non-compliant coatings found in 2004 was found again at the same store in 2006. I t did notappear 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 concerningiettlement of these NOVs. (Ex. 6 to Barrera Dec.) The settlement agreement for NOV P44603was signed by Bruce Nelson, a Vice President for Merchandising at tIome Depot. (Ex. to BarrercDec.) 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, theseNOVs should hat recaused Home Depot to develop systems, practices,md procedures for complying with Kule 1 1.13. (Carson Dec. 7 6 . )

E. Previously Alle~edViolations of Rule 1113~ e ~ i i i n ~n September 2009 and continuing through April 2010, th e District conductedKule 1 1 13 compliance inspections,. which resulted in the discovery of numerous non-compliantproducts. (Carson Dec., 7 7-12; McClung Dec,, 'l[ 4-8; Soltani Dec., 7 3-5.) In particular, theDistrict 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

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Wood Finish for Fences, Decks & Siding, Cedar Tone; 2) Akzo Nobel's Flood CWF-UV ClearWood Finish for Fences, Decks & Siding, Natural Tone; 3) Akzo Nobel's Glidden SpeedcoteExterior 100% Acrylic Semi-Gloss G 12456-01 10 White; 4) Custom Building Products' TilcLabGloss 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 ClearWood Finish, Satin Brushing Lacquer; 8) Henry's Aluminum Roof Coating # 5 5 5 ; 9) Kilz' SealerPrimer Stainblocker; 10 ) Preserva's Preservnwood Penetrating Stain & Sealer 0 1 Clear NoPigment ; 1 1) Kustoleum's Parks ProFinisher 35 0 VOC Oil Base Polyurethane for Floors ClearGloss; 12 ) Rustoleum's Parks ProFinisher 350 VOC Oil Base Polyurethane for Floors Clear Satin;13)Rustoleum's Parks ProFinisher 350 VOC Oil Base Polyurethane fo r I:loors, Clear Semi Gloss;and 14) UGL's Latex Base Drylok Masonry Waterproofer. (Carson Dec., 6 7-12; McClung Dec.,1 -8; Soltani Dec., 7 3-5.)'

When the District was conducting its inspections in 2009-2010, it notified TI-ID of itsviolation of Rule 1 1 13. In particular, on December 2,2009, District Inspector Robert Carsonserved NOV P55 127 on 'I'HD. (Carson Dec.,1 .) On December 2, 2009, District InspectorBradley A. McClung served a separate NOV, P55872, on 'THD. (McClung Dec.,n 8a.) Finally, onApril 2 1,2010, District Inspector Ahrnad Soltani servcd NO V P55494. (Soltani Dec, 6.). AHnotices 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 ofmany of the inspections. (Carson Dec., 7 1 1;McC lung 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 "floorwaxes 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 HomeDepor's ow n admission that the products are, in fact, architectural coatings. In Home Depot's 3 1 4reports provided to suppliers and to the District, Home Depot identifies both of these products a5architectural coatings that it has sold. (See Ex . 22 to Barrera Dcc., filed separately under seal. Seealso Ex. 70 to Barrera Dec. - Deposition of T H D (Glasco) rLThe roducts on the 314 repon are mqgood-faith try to list architectural coatings for 314."])VMEMORANDUM OF POIN'I'S AND AUTHORITIES

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contact was made, the inspectors identified the nun-compliant product found in their store. InI addition, the inspectors admonished and advised the managers of their obligation to comply with11 District rules, the need to remove non-compliant product from their shelves, and the need to contacttheir corporate headquarters in case other stores were selling an d offering for sale similar nun-compliant products. (Carson Dec., 7 1 1 ; McClung Dec.,1 b-e; Soltani Dec., 7 5.)

1 The District provided additional details of the violations to 'I'HD's Officeof RegulatoryCompliance in March and April. 201 0. In particular, on April 27, 2010, the District sent TFfD's ,Environmental Regulatory Compliance Specialist Michelle O'Hrien w ith a list of non-compliantI roducts purchased by the District. (Declaration of David I'leRoer ("DeBoer Dec.")7 6 . ) Mr,1 VeBuer told Ms. O'Brien that "I t is highly suggested that Home Depot initiate an inventory rcvicwof all coating products offered for sale and use in the S C A Q M D as they relate to Kule 1 1 13." (Ex.

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

I1necessary to determine the total number of salcs violations at issue in this case. The exercise,11 w~hich as been on-going for months, should be fairly simple. Salesof products are trackcd by allI ctail businesses. Moreover, at minimum, by 2008 I-IomeDepot knew it had an obligation underI Rule 314 to track and repon its sales of architecturn1 coatings, Investigation and discovery hasI revealed, however , that complete an d accurate salcs numbers may prove extremely difficult toIIobtain because:

THD ssigned single SKU numbers to multiple VOC formulations of the s m e productandlor multiple UPCs (Ex. 8- 1 1 to Barrerrt Dec.);Non-compliant coatings were sold undcr "Clearance SKUs" for which THD?hasnotbeen able to provide sales data. (McClung Dec. % 8a; Barrera Dec.1 6; Ex 16, 18 toBarrera Uec.);Non-compliant coatings were sold undcr SKUs assigned to different products (McClungDec. 7 8d; Carson Dec. 7 9.);

K 'THD sales figures are "net" figures. (Ex. 12 to Barrera Dec.j;-7-MEMORANDUM OF POINTS AND AUTHORlTIESIN SUPPORT OF MT N FOR PRE1,IMINARY INJUNCTION


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When no follow up communications were received from THD, counsel for the Districtwrote to 'I'tiDon July 27, 2012 to demand information by August 3, 2012. (Ex. 37 to BarreraDec.) On August 3, 2012, THD requested an extension of time to respond to August 29,2012,claiming i t had insufficient information to respond. (Ex. 38 to Barrera Dcc.) THD made this claimdespite the.f act that for tw o months it had atready known thc name an d size of the product and thestore locationswhere it had been purchased. 'I'he District granted THD's request and voluntarilyproduced th e then recently-completed inspection reports pertaining to Enrich N Seal. (Ex. 39 toBarrera Dec.)

On August 31,2012, THD's counsel responded in writing to thc District's request forinformation, claiming TH D "specifically blocked the hall'gallon containers from being ordered byDistrict area stores," bu t in th e Fall of 201 1 , the product had been "inadvertently shipped to TI IDstores in the District. THD claimed the mistake was corrected in December 20 1 1 . With respect tothe internet sales, I-TomeDepot expressed "surprisc" and claimed it shou ld not have been able tohappen. (Ex. 40 to Barrera Dac.)

TI1D failed to cxplain how inspectors could purchase th e product, despite its claim that aSKU blocking system should have prevented th e sales. TI ID also failed to provide any explanation&bout he scope of the problem, including. but not limited to, sales figures for the illegal productand the total number of stores that ~upposcdlyeceived the "inadvertent" delivery. Further, THDfailed to explain why shelves in its District stores contained labels and assigned shelf space for thisillegal product, months after it had allegedly been recalled. (Ex. 40 to Barrera Dec.)

When counsel for th e District followed up with TIID on thcsc deficiencies, counsel forI'HI) represented that the District could pose its questions at the ncxt scheduled deposition ofTHD's PM Q September I I and 12,20 12. (Barera Dec. 7 42.) However, when the Districtattempted to ask those questions, counsel for THD claimed&Information possessed by the PMQwitness with regard to the illegal Enrich N Seal producc was privileged as an attorney-clientcommunication. THD's counsel instructed the witness to not answer the District's questions.(Barrera Dec. 1 4 3 ; Ex. 41 to Barrera Dec.) This instruction was given even though any privilegefor attorney client communications about th e product had been waived by counsel's August 3 1,

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2012 letter (Ex. 40 to Bwera Dec.), which made multiple detailed representations in response tothe 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) . . . swaived 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 todisclosure made by anyone."].)3

When counsel for the District then sought information the following week from the TI.IDPMQ designated as the person most qualified to testify about sales of architectural coatings, thedeponent 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 ImplementedAdequate Procedures to Comply with Rules1113 and 314.

Despite many years of being on notice about the requirements of Rule 1113, Home Depotmerchants 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 t i q e that theysegan expressly addressing com pliancc with Rulc 1 1 1 3 with their suppliers. (Ex. 45-46 to BarreraDec.) Prior to this time, I'HD had simp1y re1 ed upon a geneml requirement in its Supplier BuyingAgreement that all suppliers must comply with "applicable federal, statu, provincial, and locallaws, codes, ordinances, rules, and regulations." (Ex. 47-48 to Barrera Dec.) THD chose to rely3n suppliers even though it knew suppliers had failed to comply with Rule 1 1 13 in 2004 and 2006.:Carson Dec.1 -5.)

TI,IDPMQ depositionshave revealed that THD only recently began to develop practicesand procedures for compliance with Rule 1 1 13. In particular, I'CID did not implement a system fo rtracking the VOCs in architectural coatings until Spring 201 1. (Ex. 49 to B m e r a Dec.) Thissystem requires suppliers to upload into Home Depot's computer system the Rule 11 13 category' The District and/or thc Local Prosecutors anticipate filing a Motion to Cornpei on this and otherissues.

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snd VOC level of a product. (Ex. 50 to Harrera Dec.) 'I'hc system continues to rely upon thesuppliers,with no independent evaluation (even on a spat check basis) of the accuracy of theinformation 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 islecessary so that, at the very least, these employees understand that architectural coatings areqegulated and they cannot automatically assume all can be sold in the District. Thus, if there is anis-delivery of an uncxpected,illegal product, someone in the store should bc aware that some sort,f follow up i s 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 TH D employee charged with*esponsi il 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 o Barrera Dec.) Likewise, the Tl ID:mployee charged with responsibility for completing THD's annual 3 14 report had never read Rule3 14 until just prior to hi s deposition. (Ex. 55 to Barrera Dec.) Likewise, I-IomeDepot has nolnderstanding 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 th e Paint Department. (Ex. 57-59 toBmera 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. Fo r example, with the exception of on e flooring department supplier (HenryZompany), I.lorne Depot does not produce or provide Rule 3 14 reports fo r arty suppliers that sellirchitectural 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. 2 to Barrera Dec.)Home Depot has never asked its suppliers to provide i t with a list of what the suppliers consider to3e architectural coatings. (Ex. 63 to Barrera Dec.)

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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) an d 64-66 to BarreraDec.) Since supplying those reports, Home Depot has discovered mistakes in the reports.However, no corrected reports have ever been created or produced. (Ex. 67 ,6 8 to Barrera Dec.)111. ARGUMENT

A. The Standard for Issuing a Pre l iminan Iniunction.California Health and Safety Code $ 41 5 I3 provides that when th e People seek to enjoin

my violation of any prosision of Part 4 (including I Iealth & Safety Code sections42402, 42402.1lnd 42402.2) or any rule of any air quality district, it "shall not be required to allcge facts nccessarjo show, or tending to show, lack of adequate remedy at law or irreparable damage or loss." Thushe legislature has already made the determination that significant public harm will result andnjunctive relief is the most appropriate iffay to protcct against the harm caused by the violation:Cf. IT Corp. v. Countyof lmpericrl(1983)3 5 Ca1.3d 63,69-7 1 .)

As a result of this prohibition, thc District is only required to demonstrate a likelihood of;uccesson the merits. (Id.) Such success i s highly probable given the existence of strict liability:laims against THD.

B. A Preliminaw Iniunction Should Issue to Prohibit Hom e Denot from ViolatingRule 1113.

A preliminary injunction is ncccssary to ensure compliance with Rule 1 1 13 going forward.31aintiff's complaint against TH D alleges multiple causes of action involving violation of DistrictCule I 113. Although the Fourth an d Fifth Causes of Action against THD contain a scienter+equirement ssociated with the sale of non-compliant architectural coatings, the First and Sixth3ausesof Actions are bascd on strict liability. Test imony by District inspectors, along with THD'sIW admissions regarding the sale of non-compliant producl, clearly establishes that the District# i l l prevail, at a minimum, on these strict liability claims.

Even though the District is not required to allcge any harm from these violations, such harmloes, in fact, exist. First, and most signif cantly, once these illegztl products are used, th e emissions.hat are generated can never be re-cap~ured.The harm to the environment can never be undone.

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Second, Tf-ID s the largest retailer of'architectural coatings in th e District. It h& approximately1 14 storcs in the District. When i t fails to comply with the law, its fkilure i s necessarily magnifiedbecauseof its size. Third, Rulc 1 1 13 also prohibits thc use an d application of illegal architectura l~oatings,Thus, when TH D sells illegal architectural coatings, it puts its customers in the untenableposition of violating Rulc I I 13.

Finally, when TI-IDsells non-compliant architectural coatings, i t obtains an economicdidv vantage over other retailers of architectural coatings and other facilities which are subject toDistrict rules. With respect to othc r retailers, they are incurring costs associated with the.mplementationof practices and procedures necessary to cumply with District regulations,including th e providing of training to their t.mploy~.cs.Home Depot, in contrast. is avoiding thcse:osts an d is instead profiting from the sales of illcgal products.

With respect to other facilities which arc subject to District rules, T HD is gaining anotherype of economic advantage. In particular? every air district has a variance procedure by which a'acility ca n seek advance permission to violate a District rule. (IIealth & Safcty Code 4 42350 etjeq.) When this procedure is utilized, conditions can be imposed by th e District's Hearing Board toimit the harm caused by the violation. (1-lealth& Safcty Code tj 42359.) The facility seeking a~ariances also required to pay fees to the I-Iearing Board based on the amount of excess emissionsgenerated by their violation of District rules. 'I'he minimum excess daily excess emissions fee duen these circumstances is $168.67 per day per l o c a t i ~ n . ~hose fces add up quickly and serve as anncentive for facilities to quickly come into comp limce. 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 havenade th e requisite Iegal showing, i t would have been subject to conditions that would have resultedn othcr costs to its business and i t would have had to pay more than $7 million in excess emissionkes for just 365 days of violation. Since TI ID was not a good corporate citizen in comparison to.he facilities that seek out variances, i t 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 facilityluring the variance period, unless otherwise ordered by the Hearing Board." (Ex. 9 to Barrera Dcc.)

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sum, i t is simply unfair lbr 'I'HD, ivith its 1 I4 locations, to benefit so greatly by i t s violation ofDistrict rulcs.

Ultimately, issuance of a preliminary injunction is necessary to com pel TI ID to complywith the law. THD continues to violate Rule 1 113and the cvidcncc establishes that i t will onlymake required changes to comply with the law if fbrccd to do so. When THD was issued Noticesof Violation in 2004 for a specific product, i t failed to take sufficient corrective actions and th esame product was discovcrcd again at the same store almost tw o 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,TH D still failed to institute sufficient practices or procedures such that in 2009 and 20 10, theDistrict 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 untilApril of 20 10 , and they di d not require suppliers to specifically provide VOC information untilSpring of 2011. (Ex 43-46 to Banera Dec.) Even today, TI lD refuses to train any of its store~.mpIoyecs n 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 exp iration of a sellthrough period; and th e 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 ) OfferingTor sale or selling an y architectural coating in violation of South Coast Air Quality ManagementRule 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 therules, the total penalties uitimately imposed for those violations necessarily must be higher than thcRule 303 excess emission fees simply because the District needs to de-incentivize an y willingnes:to break District rules. Violators cannot pay penalties which arc less than the emissions fees whictthey would have had to pay had they sought a variance, Thus, in this case, where the period 01violation far exceeds one year, the District anticipates that a very substantial penalty will be neededmd can be justified to punish THD nd to ensure its future compliance with Kule 1 113 .

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and 3) Using a substitute S K U to sell any Rule 1 1 13 non-compliant architectural coating. ( AProposed Order has been concurrcntl>* iled with thc Court.)

C. A Preliminam Injunction Should Issue to Prohibit Home Depot from ViolatingRule 3 14.

A preliminary injunction is also necessary to ensure compliance with Rule 3 14. ThcDistrict i s likely to prevail on thc merits with rcspcct to the Seventh Cause of Action alleging astrict liability violation of Rule 3 1 LC . '1.h~cvidcnce is clear that Tl ID did not submit the required2008-20 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 wereinaccurate. Based on testimony by 'l'1,ID'sPMQ, it appears thcrc is a high probability that the 2012report due on Janwary 30, 20 13 itpillalso be inaccurate.

Once again, even though the District i s not required to establish harm, such harm does exist.[naccuratc reports fiom the District's largest retailer of architectural coatings frustrate the overallpurpose of the rule an d simply cannot be tolcratcd. Such inaccuracies will cause manufacturers toprepare and submit inaccurate reports. In turn, thc District will nut be able to accurately asstss theVOC emissio ns inventory in the District.

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

IV. CONCLUSIONBased 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, ye t it continues to violate the law. Moreover, TH D fails to accept-esponsibility for its actions. A strung mcssagc of deterrence is necessary.DATED: October 9.20 12 SOUTH COAST AIR QUAL ITY

By: TE&SA'R.BARKERASenior Denutv District Prosecutor

AQMD Motion Against Home Depot

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