REGULATORY: Environmental: Does Sackett Add to the Enforcement Defense Toolbox For Energy Companies By Drew Bell, Chris Benson, and Cynthia Stroman

by King & Spalding
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In its highly anticipated decision in Sackett v. EPA[1], the Supreme Court unanimously held that landowners may bring a civil action under the Administrative Procedure Act (“APA”)[2] to challenge an EPA compliance order issued under the Clean Water Act (“CWA”).[3] While undoubtedly a victory for property rights advocates, Sackett may have broader implications for regulated parties, including energy companies in two areas holding promise for extending Sackett’s reasoning: (1) challenges to compliance orders issued under environmental statutes other than the CWA; and (2) challenges to the substance of EPA compliance orders. If confronted with a challenge to a compliance order’s substance, rather than just EPA’s jurisdiction under the CWA, Sackett’s reasoning supports allowing pre-enforcement review on the merits. In other words, energy companies now have the opportunity to consider a challenge to the substance of an EPA compliance order issued under the CWA before EPA files an enforcement action.

Background

In 2007 the Sacketts filled wetlands on their property with dirt and rock in order to construct a house. EPA issued a compliance order to the Sacketts, alleging that the filling violated the CWA because the wetlands were jurisdictional wetlands adjacent to a “navigable water.” The compliance order directed the Sacketts to restore the site “in accordance with [an EPA-created] Restoration Work Plan,”[4] and warned that the Sacketts could incur civil penalties for failure to comply (up to $75,000 per day).[5]

After EPA denied their request for a hearing, the Sacketts brought suit in the U.S. District Court for the District of Idaho alleging that EPA’s compliance order was “arbitrary and capricious” under the APA and violated their due process rights under the Fifth Amendment. The District Court dismissed the Sacketts’ claims due to lack of subject matter jurisdiction. The Ninth Circuit affirmed, holding that the CWA “preclude[s] pre-enforcement judicial review of compliance orders” and finding no violation of the Sacketts’ due process rights.[6]

Supreme Court Decision

In a unanimous opinion authored by Justice Scalia, the Supreme Court reversed, holding that: (1) the APA provision for judicial review applied to the compliance order, and (2) the CWA did not preclude pre-enforcement review. Specifically, the Court held that the Sacketts may challenge EPA’s jurisdiction under the CWA to issue a compliance order relating to their property (i.e., whether their wetlands are “navigable waters” under 33 U.S.C. § 1362).

Under the APA, regulated parties may seek judicial review of “final agency action[s] for which there is no other adequate remedy in court.”[7] The Court concluded that the compliance order contained “all of the hallmarks of APA finality that [the Court’s] opinions establish,” such as high civil penalties for failure to comply and the remedial measures the Sacketts were ordered to undertake.[8] The Sacketts were without an adequate remedy to challenge this final action. Unless and until EPA initiated an enforcement action, the Sacketts could do nothing to dispute the charges in the compliance order. And they continued to accrue daily penalties as they waited.[9] Therefore, the Court concluded that the APA provided for judicial review of the compliance order EPA issued to the Sacketts.

After concluding that the APA applied to the Sacketts’ compliance order, the Court addressed whether the CWA precludes review under the APA.[10] Noting the “presumption favoring judicial review of administrative action,” the Court rejected the EPA’s argument that the CWA implicitly precludes APA review.[11] The Court was particularly unimpressed by EPA’s argument that Congress intended compliance orders to provide an efficient method of enforcing the CWA. It stated that the APA presumption of judicial review “is a repudiation of the principle that efficiency conquers all,” and that “there is no reason to think that the Clean Water Act was uniquely designed to enable the strong-arming of regulated parties into ‘voluntary compliance’ without the opportunity for judicial review ― even judicial review of the question whether the regulated party is within the EPA’s jurisdiction.”[12]

Implications Going Forward

On its face, the Sackett decision is limited to (1) jurisdictional challenges to (2) compliance orders issued under the CWA. Both of these “limitations” are likely to be tested in future litigation, but we focus here on the jurisdictional issue.[13] With respect to that question, regulated parties, including energy companies, have grounds to consider bringing pre-enforcement challenges not only to EPA’s underlying CWA jurisdiction, but also to dispute the substance of EPA compliance orders.

As a basic principle, the Court aims to rule on as narrow a ground as possible. Thus, it is not surprising that the Court disposed of the case without going beyond the jurisdictional question. However, the decision offers at least a promising hint. In her concurring opinion, Justice Ginsburg suggested that the Court’s decision is limited to jurisdictional challenges.[14] She did not propose any rationale for why future challenges should be so limited, and her concurrence failed to draw support from any other Justice.

On the contrary, the logic underlying the Court’s opinion appears to support challenges to the merits of EPA compliance orders. There is no apparent analytical distinction between EPA’s factual determination that a regulated party’s property is adjacent to a “navigable water” and a factual determination that the party discharged fill material into those waters from a point source. All such determinations are final actions with legal consequences for the regulated party, and the party’s alternative avenues for relief (or lack thereof) do not change depending on the scope of the challenge. Without judicial review under the APA, the regulated party faces the same choice: voluntarily comply with the EPA’s compliance order, or wait for EPA to pursue an enforcement action while the potential liability for non-compliance multiplies.[15] The Court rejected EPA’s ability to “strong-arm” regulated parties with this false choice, and decisions by lower courts applying Sackett in similar fashion when presented with merits challenges to EPA compliance orders seems logical.

Energy companies facing EPA compliance orders under the CWA should consider the potential benefits of bringing an APA challenge to jurisdiction as well as the merits of the compliance order. This is a fact-specific determination, but the opportunity for energy companies to expand upon Sackett may arise in a number of contexts. Examples include the construction of well pads, access roads, pipelines, or alleged offsite migration of pollutants. Indeed, a number of existing compliance orders served on energy companies may be subject to such challenges.Given that Sackett has opened a door, it will be useful to monitor post-Sackett decisions going forward.[16]
_________________________________
[1] 132 S.Ct. 1367, 566 U.S. ___ (March 21, 2012).
[2] 5 U.S.C. § 706.
[3] 33 U.S.C. § 1251 et. seq.
[4] Sackett, 132 S.Ct. at 1371.
[5] Id. at 1372.
[6] See id. (quoting 622 F.3d 1139, 1144 (9th Cir. 2010)).
[7] 5 U.S.C. § 704.
[8] Sackett, 132 S.Ct. at 1373.
[9] Id.
[10] For example, the Comprehensive Environmental Response, Compensation, and Liability Act expressly prohibits judicial review under the APA. See 42 U.S.C. § 9613(h).
[11] Sackett, 132 S.Ct. at 1374 (quoting Block v. Community Nutrition Institute, 467 U.S. 340, 349 (1984)).
[12] Id. at 1373-74.
[13] Whether the Supreme Court’s logic applies to statutes other than the CWA is a topic for another article. For example, Sackett’s logic might apply to compliance orders issued under the Clean Air Act.
[14] See Sackett, 132 S.Ct. at 1374-75 (Ginsburg, J., concurring).
[15] It is not clear whether the civil penalties associated with violating an EPA compliance order are stayed during the time that a regulated party is challenging the EPA’s order under the APA.
[16] Similarly, it will be important to track EPA’s reaction to the decision. The agency might, for example, remove the daily penalties for noncompliance or rephrase its compliance orders as warning letters to avoid pre-enforcement review. On the other hand, the decision may force EPA to perform more thorough investigations before issuing compliance orders that courts will interpret as final agency actions.


Drew T. Bell
Washington, D.C.
+1 202 626 5513
dbell@kslaw.com

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Christopher R. Benson (Chris)
Washington, D.C.
+1 202 626 5417
cbenson@kslaw.com

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Cynthia AM Stroman
Washington, D.C.
+1 202 626 2381
cstroman@kslaw.com

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DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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