UNITED STATES OF AMERICA v. NVR, INC.

Filing 19

OPINION. Signed by Judge Joseph H. Rodriguez on 12/8/2020. (rtm, )

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parties settled the dispute and executed a Consent Decree (the “Consent Decree or
“Decree”), which this Court granted and entered on September 7, 2017. [Dkt. No. 5].
NVR now moves to terminate the Consent Decree, providing that it has complied with
the Decree and “satisfactorily” completed the requirements for termination. [Dkt. No. 91, p. 5]. The Government opposes NVR’s Motion “because NVR materially failed to
comply with the decree for ‘a minimum of’ 30 months.” [Dkt. No. 10, p.3]. Specifically, it
contends that NVR failed: (1) to obtain CWA permits prior to commencing construction
activity in numerous building lots and locations; and (2) to develop an effective
compliance program.
B. The Clean Water Act
The purpose of the CWA is “to restore and maintain the chemical, physical, and
biological integrity of the Nation's waters.” 33 U.S.C.A. § 1251. In accordance with this
objective, the CWA makes unlawful, “the discharge of any pollutant by any person”
unless it is authorized by the Act. 33 U.S.C.A. § 1311(a). The act authorizes such
discharge when done in compliance with National Pollutant Discharge Elimination
System (“NPDES”) permits. Id. § 1362(12). When authorized by the EPA, States may
also issue their own permits for discharge into navigable waters within their
jurisdiction. 33 U.S.C. § 1342(b).
Under CWA Section 402(p), the discharge of storm water associated with
industrial activity requires a permit. 33 U.S.C. § 1342(p). Storm water discharge with
industrial activity “means the discharge from any conveyance that is used for collecting
and conveying storm water and that is directly related to manufacturing, processing or
raw materials storage areas at an industrial plant”—including:
Construction activity including clearing, grading and excavation, except
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operations that result in the disturbance of less than five acres of total land
area. Construction activity also includes the disturbance of less than five
acres of total land area that is a part of a larger common plan of development
or sale if the larger common plan will ultimately disturb five acres or more
....
C.F.R. § 122.26 (b)(14), (b)(14)(x).
The CWA imposes strict liability for violations of NPDES permits. 33 U.S.C. §§
1311(a), 1319(d). The United States can initiate civil enforcement actions against persons
for these violations on behalf of the EPA. Id. § 1319.
II.

Analysis

“A consent decree is a hybrid of a contract and a court order.” Holland v. New
Jersey Dep't of Corr., 246 F.3d 267, 277 (3d Cir. 2001). Parties enter into consent
decrees “after careful negotiation has produced agreement on their precise terms. . . .
Naturally, the agreement reached normally embodies a compromise; . . . [and] the scope
of a consent decree must be discerned within its four corners, and not by reference to
what might satisfy the purposes of one of the parties to it.” United States v. Armour &
Co., 402 U.S. 673, 681–82, 91 S. Ct. 1752, 1757, 29 L. Ed. 2d 256 (1971). The Third
Circuit has found that “the principles of local law guiding the interpretation of
contracts” govern the interpretation of consent decrees. Kean v. Adler, 65 F. App'x 408,
412 (3d Cir. 2003). When interpreting a consent decree, the Court must first “determine
whether its terms unambiguously cover the dispute in question.” United States v. State
of New Jersey, 194 F.3d 426, 430 (3d Cir. 1999). The terms here, unambiguously cover
this dispute.
A. Relevant Terms of the Consent Decree
Generally, the Decree executed by the parties “requires NVR to implement a
comprehensive, corporate-wide program to improve compliance with federal laws that
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pertain to controlling storm water pollution.” [Dkt. No. 4-1, p. 4]. More specifically, the
Consent Decree provides a “Compliance Program” that NVR, “its successors and
assigns, as well as any subsidiaries of NVR that engage in Construction Activity”
(“Builder”) agreed to fulfil for 30 months.” (Consent Decree, p. 6).
In sum, the Compliance Program required NVR to comply with CWA Storm
Water Requirements, have at least one Site Storm Water Compliance Representative for
each sight, one Division Storm Water Compliance Representative for each site, provide
notice of a list of its sites to the EPA, obtain permits prior to commencing builder
construction activity at a site, prepare records, conduct inspections and reviews, install
and maintain all required stormwater controls and practices for Builder construction
activity, provide site oversight and review, submit three (3) national compliance
summary reports, and provide a stormwater training program.
The Consent Decree provides the following requirements for termination
of the Decree:
(i) Builder has complied with the requirements of Section IV of this Consent
Decree (Builder's Compliance Program) for a minimum of two and half
years (30 months) following the Date of Entry ("30 month Anniversary"),
(ii) Builder has submitted a minimum of three National Compliance
Summary Reports, (iii) Builder has paid the civil penalty and any accrued
stipulated penalties as required by this Consent Decree, and (iv) Builder has
no unresolved matters subject to dispute resolution pursuant to Section IX
(Dispute Resolution).
(Id. at ¶ 71).
Pursuant to the Decree, the Builder's Compliance Program ends on the 30 month
Anniversary—March 7, 2020—unless “otherwise ordered by the Court under Paragraph
72.e.” (Id. at ¶ 71). Paragraph 72. e. provides that the Decree’s requirements end on the
30th Anniversary, “unless the Court determines, in an order to deny a motion to

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terminate by Builder, that Builder materially failed to meet the requirements for
termination under Paragraph 71 of this Decree.” (Id. at ¶72(e)). Thus, the Decree
governs its termination, and the question before the Court is whether NVR materially
failed to comply with the Decree.
B.

NVR’s Compliance with the Decree
It is undisputed that, for a period of time, NVR was operating 6 of its

construction sites without first obtaining the proper permit, 1 in violation of the
compliance program—under which NVR was required, [p]rior to commencing Builder
Construction Activity at a Site, [to] obtain coverage required under the Applicable
Permit. . . .” (Consent Decree at ¶7(b)). The Government argues that “[b]cause obtaining
a permit is a fundamental objective of the CWA and the Decree, the significance of
failing to obtain a permit prior to commencing construction activity at dozens of
locations for months at a time demonstrates that NVR materially failed to comply with
the Decree for 30 months as required for termination.” [Dkt. No. 10 at 10 of 19].
To be sure, allegations that NVR failed to obtain NPDES permits under the CWA
led to the entry of this Decree, and “relevant statutes and regulations may sometimes be
used to shed light on the terms of a consent decree.” McDowell v. Philadelphia Hous.
Auth. (PHA), 423 F.3d 233, 239 (3d Cir. 2005) (citations omitted). Generally, however,
“a court should confine its interpretation to the four corners of the decree and not try to
divine its meaning from speculation about the purposes of the parties or the background
legal regime.” McDowell v. Philadelphia Hous. Auth. (PHA), 423 F.3d 233, 239 (3d Cir.
2005). Thus, whether obtaining a permit is a fundamental objective of the CWA is not

1

[Dkt. No. 9-1, p. 13; Dkt. No. 10, p. 11].
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conclusive of whether failure to obtain a permit is a material failure of the Decree.
NVR, argues that its “errors in permit coverage comprise not only a small portion
of NVR’s permitted locations, but are also a de minimis piece of NVR’s overall
compliance efforts.” [Dkt. No. 9-1, p. 16 of 22]. During the 30-month term of the Decree,
NVR required 7,657 stormwater permits. In year one, NVR mistakenly failed to obtain 6
permits out of the 3,910 permits required. 2 Thus, NVR, provides that the missing
permits in year one represent only .15% of the total number of permits NVR required for
that year. This non-compliance lasted a total of 626 days during year one of the Decree.
[Dkt. No. 9-1, p. 18 of 22; Dkt. No. 10, p. 11 of 19]. NVR, however, argues that this
missing permit coverage represents less than 1% of over 298,000 days of permit
coverage required. During the time of missing permit coverage, NVR claims that it
operated these sites as though a permit were properly in place. 3
The Government does not dispute that “some violations under the Decree were
not material[,]” including certain violations regarding permit coverage. [Dkt. No. 10, p.
17 of 19]. Indeed, the Government does not take issue with NVR’s failure to obtain 2
permits in year two, 1 permit in year three, or the failure to complete certain inspections.
But it argues that “the correct and fair measure of materiality depends upon an absolute
measure of the underlying failure, not a comparative or relative measure.” (Id. at 4 of
19). The Government, however, cites no authority to support its proposition.

The Government claims that NVR failed to obtain CWA permits for 92 “lots,” whereas NVR
describes its failure in terms of 6 “sites.” NVR explains “At some locations, NVR obtains a
permit to cover multiple lots in a subdivision or community. At others, it must obtain an
individual permit for each lot.”[Dkt. No. 12, p. 12]. NVR claims that only one permit was
required for each of the 6 sites with reported issues. (Id.)
3 NVR further outlines the operation of the relevant sites in detail in its briefing. [Dkt. No. 9-1, p.
17 16-17 of 22].
2

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Under New Jersey law “[w]here a contract calls for a series of acts over a long
term, a breach will be ‘material’ if it tends to ‘defeat the purpose of the contract.’” New
Jersey, Dep't of Envtl. Prot. v. Gloucester Envtl. Mgmt. Servs., Inc., 264 F. Supp. 2d 165,
179 (D.N.J. 2003) (quoting Medivox Prods., Inc. v. Hoffmann-LaRoche, Inc., 256 A.2d
803, 809 (N.J. Law. Div. 1969)). There is no evidence that NVR’s failure to comply with
the permitting requirement in Year 1 defeats the Decree’s purpose. Additionally, both
parties recognize that, under the Second Restatement:
In determining whether a failure to render or to offer performance is
material, the following circumstances are significant:
(a) the extent to which the injured party will be deprived of the benefit
which he reasonably expected;
(b) the extent to which the injured party can be adequately compensated
for the part of that benefit of which he will be deprived;
(c) the extent to which the party failing to perform or to offer to perform
will suffer forfeiture;
(d) the likelihood that the party failing to perform or to offer to perform
will cure his failure, taking account of all the circumstances including any
reasonable assurances;
(e) the extent to which the behavior of the party failing to perform or to
offer to perform comports with standards of good faith and fair dealing.
Restatement (Second) of Contracts § 241 (1981); see also Scottsdale Ins. Co. v. Weiner,
No. CIV.03-3857(JBS/JS), 2010 WL 445649, at *4 (D.N.J. Feb. 1, 2010); Roach v. BM
Motoring, LLC, 155 A.3d 985, 992 (N.J. 2017). These factors are “applied in the light of
the facts of each case in such a way as to further the purpose of securing for each party
his expectation of an exchange of performances.” Restatement (Second) of Contracts §
241 (1981).

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As to the first factor—the loss of benefit to the injured party—"all relevant
circumstances must be considered.” Id. Here, the Government provides that NVR’s
breach deprives it of its bargain for 30 months of compliance under the Decree. That is
not to say that the benefit reasonably expected from the parties’ exchange was perfect
compliance. Indeed, the parties’ contemplated NVR’s failure to meet Decree
requirements. [See Dkt. No. 4-1, p. 6 (“If NVR fails to meet the requirements set forth in
the Decree, then NVR is subject to stipulated penalties.”)]. According to the
Government, however, the 30-month period is particularly important, given that NVR
builds thousands of homes a year.
Here, NVR’s non-compliance is limited to the first 12 months of the 30-month
Decree Term, and concerned only a small number, and overall percentage, of its
construction sites. Notably, NVR recognized its non-compliance, self-reported its
failures, and represented that any non-compliance was not in bad faith, but mere
oversight which it sought to promptly correct. The Government even acknowledges that
some of the non-compliance stemmed from issues before the Decree took effect. [Dkt.
No. 10, p. 13 of 19]. Therefore, while the Court agrees that a failure to comply will
produce some loss of benefit to the Government, in light of the surrounding
circumstances, any loss to the government as a result of NVR’s non-compliance was
minimal.
As to the extent to which the government can be adequately compensated for the
loss of its benefit, the United States argues that it “can only be compensated . . . by
requiring the Consent Decree to remain in effect until NVR can demonstrate that it has
not materially failed to comply for 30 months.” [Dkt. No. 10, p. 13]. The Court cannot
find that this in the only compensation for its loss when under the Decree, NVR is
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subject to stipulated penalties for a failure to meet requirements. In fact, NVR was
required to pay the government a fine of $250,000 for its noncompliance—a fee directly
contemplated and agreed to by the parties, as a consequence of NVR’s actions. “NVR
declined to pursue formal dispute resolution, and agreed to pay the $250,000 stipulated
penalty. . . .” [Dkt. No. 10,p. 14 of 19].
The Government contends that the relative size of that stipulated penalty for
NVR’s failure to obtain a permit pursuant to the Decree shows the seriousness of the
violation. [Dkt. No. 10, p. 14 of 19]. The penalty for failure to obtain a permit is 58% of
the original civil penalty. While the penalties “set forth in the Decree reflect the
seriousness of the violation,” the amount of the stipulated penalty alone, does not
illustrate the materiality of the non-compliance. [Dkt. No. 4, p. 10]. Rather, “[t]he fact
that the injured party already has some security for the other party's performance
argues against a determination that the failure is material.” Restatement (Second) of
Contracts § 241 (1981).
Next, the Court looks to the extent that NVR will suffer forfeiture. The
government submits that NVR will not suffer forfeiture, as the continuance of the
Decree would only require additional monitoring and enforcement. Specifically, the
Government seeks to require NVR to submit an additional National Compliance
Summary Report, to document its continued compliance. NVR’s reporting and
monitoring requirements are a small burden considering that NVR, at this point, claims
to have an effective Compliance Program in place. NVR, however, argues that if the
Court extends the term of the Decree it would suffer forfeiture because it “would be
deprived of the 30-month term that was negotiated by the parties in the Decree.” The
Government does not propose NVR begin a new 30-month term of compliance under
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the Decree; instead, it proposes a new termination date, requiring approximately eleven
(11) additional months of compliance. Thus, NVR would not be deprived of the full 30month term, but would likely suffer some forfeiture, as there were numerous
requirements under the Decree that NVR followed for its full term. As an additional year
of compliance is relative to NVR’s violations, which mostly occurred within the first year
of the Decree, that forfeiture is minor.
As to factor four, the Court considers the likelihood that NVR will cure his failure,
taking account of all the circumstances including any reasonable assurances. “The
likelihood that the failure will be cured is [] a significant circumstance in determining
whether [non-compliance] is material.” Restatement (Second) of Contracts § 241 (1981).
Here, the parties agree that NVR has already demonstrated progress and intent to cure
its failures. NVR not only took action to obtain permits for those sites it realized were
un-covered, but provides a list of prompt corrective action taken to address the
underlying issues in its first year under the Decree. That corrective action, as the
Government concedes, led to “significant improvements in its compliance during the
Decree’s second and third compliance reporting cycles.” [Dkt. No. 9-1, pp. 14-15, p. 14
n.5; Dkt. No. 10, p 16].
Still, the Government contends that NVR’s failure to obtain permits
demonstrates its initial compliance procedures were inadequate. Yet, its compliance in
the remaining 18 months is evidence that the additional compliance procedures put in
place, are effective. “NVR conceded that additional compliance measures and systems
were required when it adopted at least five additional corporate-wide procedures to
ensure that similar failures would not be repeated.” [Dkt. No. 10, p. 13 of 19]. Thus,
there is a strong likelihood NVR will cure its failures, and the expectation of a cure is
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reasonably secure. In such a case, “in spite of the failure, there is less reason to conclude
that the failure is material.” Restatement (Second) of Contracts § 241 (1981).
Finally, NVR’s behavior comports with standards of good faith and fair dealing.
The Government does not dispute this fact, but contends that this factor is irrelevant
because the CWA is a strict liability statute. The issue before the Court, however,
concerns NVR’s compliance under the Consent Decree, not the CWA. While good faith
alone is not conclusive of whether the failures of NVR are material, “[t]he extent to
which the behavior of the party failing to perform or to offer to perform comports with
standards of good faith and fair dealing is, . . . a significant circumstance in determining
whether the failure is material.” Restatement (Second) of Contracts § 241 (1981).
Here, consideration of the significant circumstances above indicate that NVR’s
failure to obtain permits for certain sites, was not a material failure to comply with the
Decree. The Decree set forth numerous requirements that NVR had to follow, which
furthered the objective to have NVR “implement a comprehensive, corporate-wide
program to improve compliance with federal laws that pertain to controlling storm
water pollution.” [Dkt. No. 4-1, p. 4]. NVR certified how it followed all of these other
requirements, despite its failure to obtain certain permits.
In sum, the Court finds that the loss to the Government for any non-compliance,
and any forfeiture to NVR if compliance is extended, is minimal. However, the Court
finds significant that (1) there is a strong likelihood that the failure will be cured, and in
fact, has already been cured; (2) NVR acted in good faith in following permit
requirements and self-reporting any issues; (3) NVR implemented and followed the
Decree’s other requirements; and (4) has paid stipulated penalties for its noncompliance. Together, these factors provide that NVR’s failures were not material.
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Therefore, NVR has satisfactorily complied with the Consent Decree’s requirements for
termination.
I.

Conclusion

For the forgoing reasons, the Court will grant NVR’s Motion to Terminate the
Consent Decree.
An appropriate Order will be entered.
Dated: December 8, 2020
/s/ Joseph H. Rodriguez
JOSEPH H. RODRIGUEZ, USDJ

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