DATE: Monday, July 21, 1997                 TAG: 9707210073

SECTION: FRONT                   PAGE: A1   EDITION: FINAL 

SOURCE: BY SCOTT HARPER, STAFF WRITER 

DATELINE: NORFOLK                           LENGTH:  119 lines

IT'S FEDS' TURN TO TAKE SMITHFIELD TO THE SHED AN EARLY RULING ON FORCING AN EX-EMPLOYEE TO TESTIFY COULD PROVE PIVOTAL.

One of the most intriguing questions in the U.S. Environmental Protection Agency's $125 million case against Smithfield Foods Inc., set to begin here today, centers on a bald, bearded and embittered man sitting in federal prison.

Will Terry L. Rettig testify?

Rettig, of Virginia Beach, is the former wastewater director at Smithfield Foods. He measured and reported pollution levels - which the EPA claims were excessive and unlawful more than 5,330 times since 1991 - in millions of gallons of treated hog wastes from company slaughterhouses.

He pleaded guilty to destroying and falsifying environmental reports and to illegally discharging wastes into the Pagan River in Isle of Wight County. In January, Rettig was sentenced to 30 months in prison by U.S. District Judge Rebecca Beach Smith - the same judge who will hear the EPA's case against Smithfield Foods.

In an affidavit, Rettig has said his criminal actions during his tenure in the 1980s and early 1990s were condoned, and even encouraged, by top managers at the East Coast's largest pork processor.

He has described how requests for increased staffing and better equipment were shunned by supervisors under pressure to minimize costs. Lying on state pollution reports, Rettig has said, was one way the company showed compliance with environmental rules.

Smithfield Foods has strongly denied his allegations and has fought against his testifying.

Rettig refused to answer probing questions while on the stand in a separate, state trial against the meatpacker earlier this month. He cited his constitutional right against self-incrimination in ``taking the Fifth.''

In the federal case, however, lawyers with the U.S. Justice Department have asked that Rettig be forced to tell what he knows about the two company waste plants that are supposed to filter pollutants before they reach the Pagan River.

Rettig's court-appointed lawyer, Charles Burke of Virginia Beach, has advised his client once again to refuse to testify, fearing that Rettig might be prosecuted for other illegal activities he would describe on the stand.

Burke has told state and federal investigators that Rettig will reveal everything he knows - but only if guaranteed immunity from prosecution. Federal lawyers have refused, Burke said.

``Without immunity, I told Terry to keep quiet, do his 30 months and move on with his life,'' Burke said. ``He gains nothing by talking.''

So, legally, the only way that Rettig will become a witness in the federal case is if Judge Smith orders him to testify. Her decision on the volatile issue is expected as early as the opening day of the trial in federal court in downtown Norfolk.

Smithfield Foods, a $4 billion conglomerate based in Norfolk, faces a maximum fine of $125 million under the EPA lawsuit. That equates to $25,000 for each of the 5,330 alleged violations of the national Clean Water Act since 1991.

The suit irked Smithfield Foods CEO Joseph Luter III enough that he called a news conference the day after it was filed last fall. Luter labeled the lawsuit ``extortion'' and said his company was caught in the middle of a petty game of politics between Richmond and Washington, with each trying to appear tough on environmental protection.

Virginia and the federal government have waged an almost constant war of words and legal threats since Republican Gov. George F. Allen came to office in 1994 on a business-first platform of deregulation.

The state case against Smithfield Foods ended abruptly in midtrial this month when a key witness was disallowed from testifying for the state. Virginia has refiled its lawsuit, which should be heard later this year.

In principle, the federal case is as much a criticism of Virginia as a challenge to Smithfield Foods. The EPA argues that the state cut too weak a deal with the company in 1991 and that the Pagan River paid the price with excessive amounts of pollutants flowing into its brown waters.

Under that deal, the state agreed to relax limits on several pollutants, most notably phosphorus. A nutrient, phosphorus is known to damage the Chesapeake Bay by sparking algae blooms and fish kills.

In exchange, Smithfield Foods pledged to pipe its slaughterhouse wastes - rich in phosphorus, nitrogen, chlorine, fecal coliform and other pollutants - to a public treatment plant in Suffolk once space was available.

That connection was supposed to take place in 1994 or 1995, but is now expected to be completed this summer, officially ending all discharges from Smithfield Foods to the Pagan River.

But according to the EPA lawsuit, that agreement did not authorize the company to violate pollution laws and certainly did not give Smithfield Foods the freedom to dump excessive phosphorus for those years.

Anthony Troy, lead attorney for Smithfield Foods, has said that if the company loses on the phosphorus issue, state agreements coaxing other businesses into compliance with environmental laws will be ``worth virtually nothing.''

``If you can make an agreement with the state and then a number of years down the road the federal government steps in and calls the whole deal off, that doesn't give anyone much confidence in negotiating with the state,'' Troy has said.

Such agreements, called consent orders, are the backbone of enforcement of environmental rules in Virginia and other states. They work like this: When pollution violations occur, state officials will draft a cleanup schedule and, occasionally, assess a small fine instead of dragging the polluter into court right away.

The theory is simple: Working with a troubled company instead of beating it over the head often gets faster and cheaper cleanups and compliance.

That may be true in some cases, critics say, but consent orders also give state officials a lot of leeway to play favorites and to negotiate in private.

Subjectivity replaces objectivity, say critics, which include many leading environmental groups such as the Chesapeake Bay Foundation and the Sierra Club.

Judge Smith, in an earlier ruling in the case, also faulted the consent-order system, arguing that it has contributed to Virginia's ``toothless'' enforcement performance in recent years.

More specifically, the judge ruled that Smithfield Foods can be held liable for phosphorus pollution, despite the state order that relaxed its limits.

The Smithfield Foods case seems to show both the good and the bad of consent orders. On the upside, the order established a schedule for ending some of the most renowned and contaminant-loaded discharges into state waters. And it kept Smithfield Foods from moving its operations to North Carolina, as Luter had threatened to do.

On the downside, it gave Smithfield Foods the ability to emit a damaging nutrient - phosphorus - that other companies and industries could not.

The order also came as the governors of Virginia, Maryland and Pennsylvania and the mayor of Washington, D.C., had agreed to cut phosphorus and nitrogen emissions as part of a plan to revive the ailing Chesapeake Bay. KEYWORDS: ENVIRONMENT LAWSUIT SMITHFIELD FOODS EPA

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