Supreme Court Overturns EPA

Clean Water Act Compliance Orders Can Be Challenged In Court

By: George J. Mannina, Carollyn B. Lobell, Robert C. Horton

Reversing the U.S. EPA, and every Federal Court of Appeals that has considered the specific issue, a landmark 9-0 Supreme Court decision handed down March 21, 2012 holds that land-owners may challenge EPA administrative compliance orders issued under the Clean Water Act ("CWA") in court before EPA asks a court to enforce the order.  Sackett v. EPA, 2012 U.S. LEXIS 2320 (March 21, 2012).

The case arose because Michael and Chantell Sackett put fill dirt on their land in Bonner County, Idaho to build a house.  EPA, which shares enforcement authority with the U.S. Army Corps of Engineers ("Corps"), asserted the filled-in area contained wetlands subject to the CWA and the Sacketts violated the CWA by filling in jurisdictional wetlands without a CWA section 404 "dredge and fill" permit.  EPA issued an administrative compliance order that required the Sacketts to undo all work on their property and restore the area to its pre-construction condition.

Until now, landowners who found themselves in the Sacketts' position had little choice but to obey such compliance orders.  Under a compliance order, civil penalties of up to $75,000 per day per alleged violation accrue – up to $37,500 for allegedly violating the CWA, and up to an additional $37,500 for violating the administrative compliance order itself.  And the penalties mount up to a point in time of EPA's choosing to seek a court order enforcing the compliance order.  To put this into perspective, civil penalties could accrue at the rate of $1 million every two weeks.  Thus, compliance orders carried virtually irresistible pressure to comply as quickly as possible, even where CWA jurisdiction is questionable.

Believing their property was not a wetland, the Sacketts asked EPA to hold an administrative hearing to decide whether the filled area is actually subject to CWA requirements.  When EPA declined to hear their appeal, the Sacketts challenged the compliance order in federal court.  But the District Court granted EPA's motion to dismiss, and the Ninth Circuit Court of Appeals upheld the dismissal based on a long line of cases holding that the CWA precludes pre-enforcement judicial review of administrative compliance orders under the Administrative Procedure Act.  Sackett v. EPA, 622 F.3d 1139, 1144 (9th Cir. 2010).  The Supreme Court granted the Sacketts petition for certiorari to determine whether the CWA precludes pre-enforcement judicial review of an administrative compliance order, and, if so, whether that works a violation of their constitutional right to due process of law.

Before the Supreme Court, the government argued that pre-enforcement judicial review of compliance orders is inappropriate because there is no final agency action under the Administrative Procedure Act until EPA actually goes to court to enforce its compliance order.  Under this theory, since EPA had not yet sought to enforce its compliance order against the Sacketts, there was no "final agency action," which is a prerequisite for judicial review under the Administrative Procedure Act.  A unanimous Court rejected that logic.  The Court held that a compliance order is a final agency action regardless of when the government goes to court to enforce it because the compliance order determines the rights or obligations of the Sacketts, legal consequences flow from issuance of the order, and the order marks the consummation of the agency's decisionmaking process because it is not subject to further agency review.

Although the Court did not address the issue of whether the Sackett's property is or is not subject to CWA jurisdiction, the practical effect of its decision is to give the Sacketts, and all similarly situated parties, the right to file suit to challenge CWA jurisdictional determinations in compliance orders.  The Court's decision in Sackett may cause EPA to be more circumspect in the issuance of such orders because land owners or developers subject to such orders may immediately file suit in District Court instead of complying to avoid the risk of incurring civil penalties that could quickly amount to millions of dollars.

The Court's decision will likely also have implications for jurisdictional determinations issued by the Corps, an issue not presented in Sackett.  When a property owner, before he or she fills in the property, asks the Corps if the property is subject to the CWA and is told yes, this means the Corps believes the owner must obtain a CWA permit before he or she may fill in the property.  Unlike the EPA regulations regarding administrative compliance orders, the Corps regulations provide an appeal process to challenge such  jurisdictional determinations.  However, if the Corps denies an administrative appeal, the Agency's position, thus far supported by the courts, is that judicial review cannot be sought until after the section 404 permit review process is completed.  The section 404 permitting process can take months, if not years, and typically costs several hundred thousand dollars to complete because of all the paperwork and studies involved, even where coverage is sought under one or more nationwide permits.  Thus, prior to Sackett, the courts have dismissed judicial challenges to Corps-issued jurisdictional determinations, holding that such challenges could not be brought until after completion of the 404 permitting process, at which point there is usually no practical point in going to court.

The reasoning in Sackett makes it more likely that people who are told by the Corps that their property is subject to CWA jurisdiction, and that they need a CWA permit, will be able to challenge those jurisdictional determinations without first completing the CWA permitting process, so long as they first exhaust the agency appeal process.  Landowners will still need to carefully consider the characteristics of their specific properties to determine whether such a challenge can be exercised effectively and successfully.

The Court's decision in Sackett also has ramifications for other statutes where EPA has argued that its administrative compliance orders are not subject to pre-enforcement judicial review.  Those statutes include the Clean Air Act, Resource Conservation and Recovery Act, and Toxic Substances Control Act.  (Other statutes, such as the Safe Drinking Water Act, explicitly allow judicial review while statues such as the Comprehensive Environmental Response, Compensation and Liability Act expressly preclude it.)

The Court's decision comes at a time when EPA has prepared a draft guidance document clarifying when the CWA applies.  That guidance is now being reviewed at the White House.  Some observers wonder if the Court's decision may cause EPA or the White House to reconsider some of the provisions in the draft guidance.

Proponents of the draft policy argue it accurately reflects Congressional intent regarding the jurisdictional reach of the CWA.  Opponents argue the draft policy exceeds the agency's authority under the CWA.  The CWA states its provisions apply to "navigable waters" which are defined in the Act as "waters of the United States."  The ongoing controversy over what is or is not a "navigable water" or "water of the United States" has lead to two key Supreme Court decisions, Solid Waste Agency of Northern Cook Cty. v. Army Corps of Engineers, 531 U.S 159 (2001), a 5-4 decision, and Rapanos v. United States, 547 U.S. 715 (2006) a plurality opinion, which is notorious for resulting in more confusion and litigation than clarity.  Subsequently, jurisdictional determinations have become increasingly complicated where there are questions about what constitutes an adequate "nexus" to traditional navigable waters to qualify otherwise seemingly non-jurisdictional wetlands as "waters of the United States."  The draft policy attempts to clarify the matter (see Draft Clean Water Act Guidance Significantly Increases Agency Jurisdiction, May 2011), something that Justice Alito's strongly worded concurrence says is long overdue, since for "40 years, Congress has done nothing to resolve this critical ambiguity, and the EPA has not seen fit to promulgate a rule providing a clear and sufficiently limited definition of the phrase." Should EPA's proposed guidance be adopted, more areas will be considered jurisdictional "Waters of the United States," making challenges to administrative orders regarding jurisdictional determinations more difficult to win.