DISPUTE RESOLUTION: Seeking Judicial Review of EPA Administrative Compliance Orders

by King & Spalding

[authors: Jamie Miller, Brannon Robertson]

Energy companies are right to be concerned about government regulators seeking to expand their powers. And there is often a sense that when an agency, such as the EPA, pushes its bounds and hinders legitimate business activity, there seems to be little a company can do. However there are two recent cases—one before the Fifth Circuit and the other before the Supreme Court—in which companies have fought back against what they view as excessive interference from the EPA. Both courts should issue opinions in the near future, and the cases merit watching by anyone concerned about due process rights when confronted by a regulatory body.

In U.S. v. Range Production Company et al., Range used hydraulic fracturing and horizontal drilling to extract natural gas from the Barnett Shale Formation near Fort Worth, Texas. 793 F. Supp.2d 814 (N.D. Tex. 2011). According to the EPA, Range’s drilling activities affected two domestic water wells (serving a total of nine persons). On December 7, 2010, the EPA issued an Emergency Order against Range under Section 1431 of the Safe Drinking Water Act. This order directed Range, among other things, to (1) survey wells within 3,000 feet of its gas wells and issue a plan for sampling to determine if those wells had been contaminated; (2) submit a plan for the EPA’s approval to conduct soil gas surveys and indoor air concentration analysis of households served by the affected water within 14 days; and (3) submit a plan for the EPA’s approval that identified gas flow pathways to the Trinity Aquifer (which stretches for hundreds of miles over more than 20 counties), eliminate gas flow to the Trinity Aquifer if possible, and remediate areas if the aquifer had been impacted. Failure to comply with the order subjected Range to civil penalties of up to $16,500 per day, even though the EPA had not proven Range had violated any environmental statute or regulation, or even that it had caused the contamination in question.

Range disputed the validity of the Emergency Order and stated that it would not comply with some of its terms. As a result, the EPA filed a civil enforcement action in the Northern District of Texas seeking injunctive relief and civil penalties for Range’s failure to comply. Two days later, Range filed a petition for review with the Fifth Circuit Court of Appeals, asking the Fifth Circuit to resolve whether (1) the Emergency Order was considered a “Final Agency Action” (and therefore subject to judicial review by the Northern District of Texas) given that the order was unilaterally issued by the EPA based on the EPA’s receipt of information and without notice or an opportunity for hearing; and (2) whether the arbitrary and capricious standard of review applicable to the Fifth Circuit violates Range’s due process rights.

Oral arguments took place October 3, 2011, and the Fifth Circuit’s opinion is pending. In the interim, the District Court overseeing the EPA’s civil enforcement action issued an opinion denying Range’s motion to dismiss (without prejudice). Despite the denial, the District Court wrote:

[T]he Court is struggling with the concept that the EPA can enforce the Emergency Order and obtain civil penalties from Range without ever having to prove to this Court, or another neutral arbiter, that Range actually caused the contamination [at issue], or without ever giving Range the opportunity to contest the EPA’s conclusions.

The District Court sua sponte issued a stay pending the Fifth Circuit’s opinion, which it stated would either moot the District Court’s action by invalidating the Emergency Order or provide the Court with guidance as to whether the Fifth Circuit’s review was sufficient to satisfy Range’s due process rights.

A similar case is pending before the Supreme Court. In Sackett v. United States Environmental Protection Agency, the Sacketts purchased a half-acre parcel of land near Priest Lake, Idaho, where they planned to construct a house. Shortly after they began clearing the lot, the Sacketts received a Compliance Order from the EPA, asserting that the property was a wetland subject to the Clean Water Act, and that the Sacketts illegally had placed fill material into their property. Failure to comply with the Compliance Order subjected the Sacketts to civil penalties of up to $32,500 per day. After trying unsuccessfully to obtain a hearing from the EPA to challenge the EPA’s classification of the parcel as a wetland, the Sacketts filed suit demanding an opportunity to contest the jurisdictional basis of the Compliance Order. Both the District Court and the Ninth Circuit Court of Appeals ruled in favor of the EPA, holding that the validity of the Compliance Order could be challenged only if and when the EPA brings an enforcement action seeking to impose civil penalties against the Sacketts. Thus, the Sacketts were effectively denied a day in court.

The Supreme Court granted certiorari to determine whether (1) the Sacketts may seek judicial review of administrative compliance orders under the Administrative Procedures Act; and (2) whether the inability to seek pre-enforcement judicial review violates their due process rights. 5 U.S.C. § 704. Although Sackett involves a different section of the Clean Water Act, the crux of the argument is the same as in Range Resources—whether the EPA can seek civil penalties for violations of administrative orders without having to prove a statute, regulation, or law has been violated. Oral argument in Sackett is set for January 9, 2012.

Stay tuned.

Jamie Miller
+1 713 276 7445

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    Brannon Robertson
+1 713 751 3248

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The content of this publication and any attachments are not intended to be and should not be relied upon as legal advice.

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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