September 10, 2012 Articles

EPA Compliance Orders Subject to Immediate Judicial Review

Compliance orders on construction projects are now subject to immediate challenge, giving clients and attorneys new options when faced with possible fines.

by Logan A. Hollobaugh

On March 21, 2012, the U.S. Supreme Court issued a unanimous ruling in Sackett v. U.S. Environmental Protection Agency, 566 U.S. ___ (2012). The Court held that the Clean Water Act (CWA) is subject to the Administrative Procedure Act (APA), 5 U.S.C. §§ 706, appeals process for rulings by federal agencies, including compliance orders issued by the U.S. Environmental Protection Agency (EPA).

The case arose from a compliance order issued to an Idaho couple who had initiated site work on their property, on which they planned to build a house. The EPA determined that the couple’s property, which was adjacent to a lake, was subject to the CWA and issued the order requiring the land owners to restore the property to its original condition. After being denied a hearing by the EPA, the landowners filed suit and eventually appealed the case to the Supreme Court.

As noted, the Supreme Court held that EPA compliance orders may be challenged in civil actions brought under the APA. The Court’s holding was based on its findings that an EPA compliance order is a final agency action for purposes of the APA and that landowners have no other adequate remedy available to them absent this APA-based right of review. Accordingly, the Court reversed the Ninth Circuit’s ruling that the court lacked subject-matter jurisdiction to review landowner challenges to EPA compliance orders.

It is immediately clear that this decision will have an impact on property owners, as well as the construction and environmental lawyers who counsel them.

Factual Background

The plaintiffs, Michael and Chantell Sackett, purchased a 2/3-acre parcel of land near Priest Lake in Bonner County, Idaho. The Sacketts planned to build a house on the property and began clearing the lot for construction. Part of the preconstruction involved adding fill and rock in preparation for the foundation of the residence. Shortly after the Sacketts began clearing the land, they received a compliance order from the EPA. The compliance order stated that the Sacketts had illegally placed the fill materials into jurisdictional wetlands on their property and that the property contained navigable waters, making it subject to the CWA.

The CWA prohibits, among other things, “the discharge of any pollutant by any person,” without a permit into “navigable waters,” which the CWA defines as “the waters of the United States.” 33 U.S.C. § 1311; § 1344; and § 1362(7). Although the CWA does not define the waters of the United States, if the EPA determines that any person is in violation of this restriction, the CWA directs the EPA either to issue a compliance order or to initiate a civil enforcement action. § 1319(a)(3).

The compliance order also directed the Sacketts to restore the property to its original condition pursuant to an EPA-provided work plan and required the Sacketts to grant EPA personnel access to the property. Failure to follow the directives of the compliance order would expose the Sacketts to substantial fines. Specifically, when the EPA prevails in a civil action, the CWA provides for “a civil penalty not to exceed [$37,500] per day for each violation.” § 1319(d). Moreover, according to the government, when the EPA prevails against any person who has been issued a compliance order but has failed to comply, that amount is increased to $75,000 per day—up to $37,500 for the statutory violation and up to an additional $37,500 for violating the compliance order. More than 1,300 days passed between the time the EPA issued the Sacketts the compliance order and the time the Supreme Court granted certiorari. This length of time would have resulted in staggering fines of more than $49 million (using $37,500 per day) or $98 million (using the $75,000 per day suggested by the government).

The Sacketts did not believe their property was subject to the CWA requirements and requested a hearing from the EPA. The EPA denied the hearing request. The Sacketts thereafter filed an action in the U.S. District Court for the District of Idaho, seeking declaratory and injunctive relief. The Sacketts contended that the EPA’s compliance order was arbitrary and capricious under the APA and that the failure to provide them a right of review of this compliance order deprived them of due process of law in violation of the Fifth Amendment. 5 U.S.C. § 706(2)(A). The Sacketts’ suit was filed under Chapter 7 of the APA, which provides for judicial review of “final agency action for which there is no other adequate remedy in a court.” 5 U. S. C. § 704.

The district court dismissed the Sacketts’ claims for lack of subject-matter jurisdiction. The Sacketts appealed to the U.S. Court of Appeals for the Ninth Circuit, arguing that the APA allows pre-enforcement review of CWA compliance orders and that due process requires the EPA to conduct a pre-enforcement review. The Ninth Circuit affirmed the district court’s dismissal. 622 F.3d 1139 (2010). The Ninth Circuit concluded that the CWA “precluded pre-enforcement judicial review of compliance orders,” joining four other U.S. circuit courts of appeal. The Ninth Circuit also determined that the pre-enforcement bar did not violate due process because judicial review of the compliance order was available after the EPA brought an enforcement action, and nothing barred the Sacketts from seeking a permit from the Army Corps of Engineers to build on their property, the denial of which would have been reviewable in a district court. The U.S. Supreme Court thereafter granted certiorari to consider whether the EPA compliance order was a final order, whether the Sacketts could seek judicial review of the compliance order under the APA, and, if not, whether the Sacketts’ inability to seek pre-enforcement judicial review of the compliance order violated their rights under the due process clause of the U.S. Constitution.

The Supreme Court’s Decision

The Supreme Court, in a unanimous opinion delivered by Justice Scalia, first determined that the compliance order was a final agency action. The Court stated that the compliance order has all of the hallmarks of APA finality; the EPA specifically “determined” the “rights and obligations” of the Sacketts. The Sacketts had obligations under the order to restore the property and to provide access to the EPA. Further, the Court found that legal consequences flowed from the order, including the possibility of double penalties ($75,000 per day) and the fact that the Sacketts’ ability to obtain a permit from the Corps would be severely limited. The Court further noted that the issuance of the compliance order marked the consummation of the agency’s decision-making process.

Next, the Court considered whether the Sacketts had “no other adequate remedy in court” as required by the APA. Enforcement of the CWA typically results in civil action brought by the EPA as allowed by the CWA or when voluntary compliance is not obtained after the issuance of a compliance order. However, the Sacketts could not initiate the judicial process under the CWA, as only the EPA is granted such rights. This placed individuals like the Sacketts in a nearly impossible position. They must either wait for the EPA to enforce the compliance order and risk the potential fines of $75,000 per day or comply with the order.

After discussing the Sacketts’ predicament, the Court held that nothing in the CWA expressly precludes judicial review under the APA. As such, the Court rejected the government’s arguments as to the CWA’s statutory scheme and found that the compliance order was a final act. Further, the Court rejected the government’s case law as not analogous and concluded that the compliance order issued to the Sacketts in this case was final agency action for which there was no adequate remedy other than APA review. Thus, the Ninth Circuit’s ruling was reversed, and the case was remanded for further proceedings.

The Supreme Court did not reach the broader question of whether a bar on pre-enforcement review violates due process. By not reaching the due-process arguments, the court left open the issue of whether a statutory bar on pre-enforcement review, such as the language found in the Comprehensive Environmental Response, Compensation, and Liability Act (CERCLA), is unlawful.

Justices Ginsburg and Alito both provided concurring opinions. Justice Ginsburg wrote separately to stress that, although the Court’s decision allowed the Sacketts to immediately litigate the question of the “EPA’s authority to regulate their land under the Clean Water Act,” it did not address the question of whether the Sacketts could challenge the terms and conditions of the EPA’s compliance order.

Justice Alito’s opinion is especially interesting because it attacks both the government’s position and the EPA’s possible treatment of land owners as “unthinkable.” Justice Alito goes further by chastising Congress for failing to provide reasonably clear rules in the CWA. Justice Alito concludes that “allowing aggrieved property owners to sue under the Administrative Procedure Act is better than nothing but only clarification of the reach of the CWA can rectify the underlying problem.”

Impact of the Sackett Opinion

The Sackett decision has a discernable impact for property owners as well as the environmental and construction lawyers counseling them. EPA compliance orders on construction projects are now subject to immediate challenge, giving clients and attorneys new options when faced with possible fines.

However, the Sackett opinion leaves several questions unanswered. First, the Court did not address whether its analysis can be extended to other statutes. Some will argue that Sackett provides that judicial review is available to challenge EPA orders issued under other statutes. For example, orders issued under the Resources and Conservation Recovery Act (RCRA) or the Clean Air Act (CAA) are likely subject to the same pre-enforcement judicial review. 42 U.S.C. § 6901 et seq. (1976) and 42 U.S.C. § 7401 et seq. (1970). Neither the RCRA nor the CAA contains an express pre-enforcement bar, similar to the CWA.

A second question left open, pursuant to Justice Ginsburg’s concurring opinion, is whether a property owner may seek pre-enforcement judicial review of the terms and conditions of a compliance order. This issue was not addressed in the unanimous opinion; however, Justice Ginsburg’s concurrence specifically notes that the Court ruled only that property owners may judicially challenge the EPA’s regulatory authority over their property under the CWA at the pre-enforcement stage. Her opinion suggests only a short-lived victory for the landowners, who may not be able to challenge the terms and conditions of the compliance order on their own initiative.

Third, the Court did not address whether the penalties accrue or are stayed while a recipient seeks pre-enforcement judicial review but eventually loses or whether double penalties are authorized by the CWA as suggested by the government. Clearly, the penalties would have increased to exorbitant sums if allowed to accrue during the judicial review period. The Sacketts could have faced millions in fines if the penalties were not tolled. If penalties are not tolled, individuals have little incentive to challenge EPA compliance orders in the face of sizable penalties ($37,500–$75,000 per day) and the length of time it can take to present the issues before a court. Such a chilling result is not consistent with the spirit of the Court’s ruling.

How the EPA will respond to the Sackett decision remains to be seen. Most commentators suspect that the threat of judicial review of compliance orders will stymie the EPA’s use of this enforcement tool consistent with the government’s argument. Certainly, the EPA has further incentive to ensure that there is no substantial basis to question the validity of compliance orders now that court challenges are possible. Prior to Sackett, the EPA had used compliance orders as an effective way to obtain voluntary compliance. After Sackett, the EPA may be less likely to issue an order under questionable circumstances.

Can We Expect Guidance on Identifying Waters Protected by the CWA?

In short, yes. The EPA and the Corps are currently moving forward to finalize rulemaking on a definition of “waters of the United States” (the subject of Alito’s concurring opinion). The final guidance document, which the EPA and Corps view as their authority to regulate all waters and wetlands, will significantly change and expand the water features subject to federal jurisdiction and the permit requirements under the CWA.

Keywords: litigation, construction litigation, Clean Water Act, Environmental Protection Agency, Administrative Procedure Act, Supreme Court

Logan A. Hollobaugh is an associate at Ogletree, Deakins, Nash, Smoak & Stewart PC in Chicago, Illinois.

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