September 01, 2012

Sackett v. EPA: Implications for administrative compliance

The U.S. Supreme Court’s decision in Sackett v. U.S. Environmental Protection Agency, 132 S. Ct. 1367 (2012), sparked discussions about the future of the Environmental Protection Agency’s (EPA) use of administrative compliance orders. According to a report of oral remarks by Mark Pollins, director of EPA’s Water Enforcement Division, “it’s same old, same old.” Nevertheless, the decision may have a significant impact on EPA’s approach and practitioners’ response to future administrative compliance actions.

Is the Sacketts’ property really a jurisdictional wetland?

In 2007, the Sacketts filled a portion of their 0.63-acre undeveloped lot near Priest Lake, Idaho, with dirt and rocks in preparation for building a house on the property. Although the Sacketts’ property “is separated from the lake by several lots containing permanent structures,” EPA claimed that (1) the property contained a “wetland,” and (2) the fill constituted an unpermitted discharge into the “waters of the United States,” in violation of the Clean Water Act (CWA) 33 U.S.C. §§ 1311, 1344, 1362. As a result, EPA issued a compliance order (i.e., a pre-enforcement action). Sackett, 132 S. Ct. at 1371–72. EPA subsequently denied the Sacketts a hearing to challenge whether their property fell under the jurisdiction of the CWA. The Sacketts then filed a complaint in the U.S. District Court for the District of Idaho, seeking declaratory and injunctive relief, claiming that the compliance order was “arbitrary [and] capricious” under the Administrative Procedure Act (APA), 5 U.S.C. § 706(2)(A), and issued without a hearing in violation of their procedural due process rights under the Fifth Amendment. The district court dismissed the Sacketts’ claims, concluding that the CWA precludes judicial review of compliance orders before EPA has initiated an enforcement action in federal court, and the U.S. Court of Appeals for the Ninth Circuit affirmed. Sackett v. EPA, 622 F.3d 1139 (2010). On June 28, 2011, the Supreme Court granted certiorari.

The Supreme Court decision

In its unanimous opinion authored by Justice Antonin Scalia, the Supreme Court reversed the Ninth Circuit decision with two distinct holdings: “[1] the compliance order in this case is final agency action for which there is no adequate remedy other than APA [Administrative Procedures Act] review, and [2] that the Clean Water Act does not preclude that review.” Sackett, 132 S. Ct. at 1374. Practitioners had long-awaited the Court’s decision in this case, hoping the Court would address the “due process” question (one of the questions on which the Court granted certiorari) as well as shed some light on the reach of the CWA (an issue that became more confusing with the Court’s fractured decision in Rapanos v. United States, 547 U.S. 715 (2006)). However, Justice Scalia masterfully avoided addressing either of these issues. Instead of providing the legal world with the constitutional or environmental law decision hoped for, the Court instead left us with what is, frankly, a narrow administrative law decision.

In addressing whether the compliance order at issue constituted final agency action, the Court followed and clarified the fundamental test for “finality” set forth in Bennett v. Spear, 520 U.S. 154 (1997): (1) the action must mark the “consummation” of the agency’s decision-making process, and (2) the action must be one by which “rights or obligations have been determined,” or from which “legal consequences will flow.” Sackett, 132 S. Ct. at 1371 (citing Bennett, 520 U.S. at 178). Accordingly, the Court held that the issuance of the compliance order marked the “consummation” of the agency’s decision-making process, and the Sacketts’ hearing denial was clear support that the order was not subject to further agency review. Id. at 1372. Further, the order was found to be an action by which “rights or obligations have been determined,” because, among other things, the order requires the Sacketts to “restore” their property according to an agency-approved Restoration Work Plan and provide EPA with access to their property. Id. at 1371. The “legal consequences” that “will flow” from the order include the potential exposure to double penalties in a future enforcement proceeding. Id. at 1371–72. Finally, the Court noted that the APA’s judicial review provisions require that the challenger of a final agency action have “no other adequate remedy in a court.” Id. at 1372 (citing 5 U.S.C. § 704). Without pre-enforcement review, the only access to the courts for the Sacketts would involve waiting for EPA to initiate a civil enforcement action, potentially exposing themselves to double penalties. Id. The Court found that evading this limit by applying to the Army Corps of Engineers (Corps) for a section 404 permit and then filing suit under the APA once it is denied would not provide an “adequate remedy” for action taken by EPA. Id.

On the issue of “preclusion,” the Court found that the CWA does not “expressly” preclude judicial review under the APA. Id. Additionally, the Court notes that the APA creates a “presumption favoring judicial review of administrative action,” although such a presumption “may be overcome by inferences of intent drawn from the statutory scheme as a whole.” Id. at 1373 (citing Block v. Cmty. Nutrition Inst., 467 U.S. 340, 345 (1984)). Nevertheless, the Court found that there is no implied intent that the CWA “enable the strong-arming of regulated parties into ‘voluntary compliance’ without the opportunity for judicial review….” Id. Moreover, the Court held that the APA represents a repudiation of the idea that efficiency of regulation trumps the need for judicial review. Id.

Impacts of Sackett

The Supreme Court’s decision in Sackett could be read as limited to jurisdictional challenges of administrative compliance orders issued by EPA under the CWA, but not “the terms and conditions of the compliance order.” Id. at 1374–75 (Ginsburg, J. concurring). However, in light of the Court’s decision in Sackett, we are likely left with a two-part test in the future for determining whether pre-enforcement review of EPA administrative action is allowed: (1) Is the administrative compliance order or other similar federal action a “final action” under the test set forth in Bennett v. Spear, and, if so, (2) does the applicable statute expressly preclude pre-enforcement judicial review of such actions?

It would appear that unilateral administrative orders issued under the Comprehensive Environmental Response, Compensation, and Liability Act (CERCLA) fail the second prong of this test. As the Court of Appeals for the District of Columbia Circuit pointed out in General Elec. Co. v. Jackson, 610 F.3d 110 (D.C. Cir. 2010), cert. denied, 131 S. Ct. 2959 (2011), CERCLA section 113(h) expressly bars potentially responsible parties “from obtaining immediate judicial review” of CERCLA’s unilateral administrative orders. Accordingly, parties challenging administrative orders issued by EPA under CERCLA would likely not succeed under Sackett.

However, the Court’s decision likely validates pre-enforcement review of compliance orders or similar administrative actions issued pursuant to statutes in which Congress did not include an express ban on such review, such as the CWA, the Resource Conservation and Recovery Act (RCRA), 42 U.S.C. § 6901 et seq., and the Clean Air Act (CAA), 42 U.S.C. § 7401 et seq. For example, in Hardesty v. Sacramento Metro. Air Quality Mgmt. Dist., 2012 WL 1131387, 14 (E.D. Cal. 2012), the district court, in light of Sackett, granted the recipients of a cease-and-desist order issued by the Corps under the CWA leave to amend their complaint given that the “cease and desist order was a final agency action subject to APA review.” Accordingly, Sackett likely allows a party to challenge Corps cease-and-desist orders under the CWA. However, provided that freestanding jurisdictional determinations issued by the Corps do not have any legal consequence other than to inform the recipient that the government believes that a permit is required and that the recipient’s property is subject to regulation, they do not seem to possess the finality factors necessary to warrant pre-enforcement review under Sackett.

Under the CAA, when EPA finds that a regulated entity is engaging in unlawful activity, such as constructing a pollution source without a permit, one of its options is to issue an administrative compliance order directing the party to comply with various requirements. See 42 U.S.C. § 7413(a)(1)(A), (a)(2)(A), (a)(3)(B), and (a)(4). Just as with the administrative compliance orders under the CWA, these orders have injunction-like legal status, carry potential civil and criminal penalties for non-compliance, and are issued without the opportunity for meaningful judicial review. At least two appellate decisions issued prior to Sackett held that a CAA compliance order was not final agency action subject to judicial review, despite its formality and the potential for significant liability. See, e.g., Acker v. EPA, 290 F.3d 892, 894–95 (7th Cir. 2002) (holding that a Clean Air Act section 113 administrative order was not a final agency action because it merely imposed upon the regulated entity the pre-existing burden of complying with the act); see also Tennessee. Valley Auth. v. Whitman, 336 F.3d 1236 (11th Cir. 2003). Nevertheless, given the similar characteristics of this regulatory regime to that of the CWA, administrative compliance orders under the CAA would arguably enjoy the same “finality” status. Therefore, Sackett likely opens the door to pre-enforcement judicial review of such orders and other CAA actions with the requisite finality and legal consequences based on the facts of each case. Importantly, the CAA itself, unlike the CWA, expressly subjects “any other final action” of the Administrator to judicial review. See 42 U.S.C. § 7607(b)(1)(emphasis added).

Additionally, despite recent comments from EPA officials, it is yet to be determined how EPA will approach future compliance efforts. To date, EPA has issued no guidance on its view of the scope of Sackett. In response to the Sackett decision, EPA will likely be faced with two options. The simplest approach would be for EPA to avoid issuing administrative compliance orders and use other enforcement tools instead. A second alternative would be for EPA simply to follow the same process and issue administrative orders, which would then potentially be subject to a pre-enforcement challenge. The recipient of such an order could, based on the facts, determine whether to bring a pre-enforcement challenge. Any such pre-enforcement review would be based on the administrative record compiled by EPA under traditional administrative law and principles.