Appalachian Basin

EPA Stumbles in Natural Gas Actions

Jennifer Smokelin, Chris Rissetto and Michael Joy
Counsel, Partner and Partner, Reed Smith LLP

As Energy in-Depth, and a host of other commentators, has been discussing, the Environmental Protection Agency has in the past several weeks made several surprising reversals of policy, practice or position relating to high-volume hydraulic fracturing. Interestingly, it is not a simple situation where EPA was dealing with a single policy issue or factor that when changed, effected multiple sites or circumstances around the country. Whether it was bad data (Pavilion WY), media relations being more important than science-based fact (Dimock, PA) or some unstated change in policy or position (Parker, TX) the EPA has been off-base on issues associated with natural gas development. In the Range Resources case, EPA may actually be trying to clean up from another mess, that is, its disregard for the Constitutional Protections of Due Process.

In addition to repeatedly fumbling on issues associated with high-volume hydraulic fracturing, the EPA has also been the recent target of the United States Supreme Court. The Supreme Court recently struck down a favorite EPA tool used to coerce businesses and individual citizens into EPA submission – pre-enforcement penalties.

Mike and Santell Sackett were surprised when the EPA and the Army Corps of Engineers interrupted their efforts to build a home near an Idaho lake. The Sackett’s had begun to place dirt and gravel fill on their newly purchased small piece of property when EPA issued a Compliance Order against them. The Compliance Order directed the couple to stop construction and restore “wetlands” that were determined to exist on the property; EPA claimed that the Sackett’s actions in placing fill in a wetland was a violation of the Clean Water Act (CWA), threatening the retired couple with up to $75,000 per day in potential liability.

The Sackett’s unsuccessfully sought review of EPA’s Compliance Order on the basis that they were not subject to EPA jurisdiction because the property did not contain regulated wetlands – a seemingly good argument. EPA asserted its longstanding position that people like the Sackett’s had no right to review or challenge the Compliance Order. According to EPA, the Sackett’s day-in-court could not come until EPA brought an enforcement proceeding against them. Meanwhile, the Sackett’s would be assessed penalties under the Compliance Order of up to $75,000 day. The U.S. District Court agreed and its decision was upheld by the Ninth Circuit Court of Appeals, which held that there could be no CWA pre-enforcement review.

On March 21, 2012, the Supreme Court ruled 9-0 against EPA, reversing the lower courts and holding that EPA’s Compliance Order was a final agency action and therefore could be reviewed in court under the Administrative Procedure Act (APA), even if the CWA did not expressly provide such a right of appeal. See Sackett v. United States Environmental Protection Agency, et al., Case 10-1062.

The holding in Sackett was direct and unequivocal. Yet the Court’s true concerns were best expressed in a concurring decision by Justice Alito, who observed that:

“The position taken  . . . by the Federal Government – a position that the Court now squarely rejects – would have put the property rights of ordinary Americans entirely at the mercy of [USEPA] employees.”

The Supreme Court unanimously recognized that the EPA was grossly overstepping its authority and depriving people of rights protected by the U.S. Constitution.

Now, parties adversely affected by EPA compliance orders (and perhaps orders from other federal agencies) may have path to judicial review under the Administrative Procedures Act. Federal agencies will likely consider their Compliance Order authority in a new light, as it no longer can be used to advance agency interests without the possibility of further scrutiny.

Language similar to the Clean Water Act enforcement order can be found in other environmental statutes including the Clean Air Act, the Safe Drinking Water Act, the Comprehensive Environmental Response, Liability, and Compensation Act (CERCLA) and the Resource Conservation and Recovery Act (RCRA). There are differences between the CWA and these other laws which could distinguish them from Sackett decision.

In late 2010, homeowners in Parker County, Texas reported problems with their tap water, complaining that it was bubbling and even flammable. On Dec. 7, 2010, EPA Region VI issued an emergency order seeking to compel Range Resources to take immediate action to protect these homeowners. Range Resources appealed the order and refused to comply with it. EPA Region VI had been trying to get an injunction to force Range Resources to comply with a Safe Drinking Water Act emergency order despite a  lack of evidence that Range Resources’ activities in Parker County actually and adversely impacted anyone in the region. Range Resources has been arguing that it was entitled to pre-enforcement review and that EPA is obligated to demonstrate facts supporting the underlying elements of the violation in court to secure injunctive relief and impose civil penalties.

The case was hard fought for over a year.  On Thursday, March 29, 2012, EPA documents filed in the U.S. District Court of the Northern District of Texas seeking to rescind its position and dismissing the case.  EPA did not mention the Sackett decision in its cover letter to Range Resources or its Stipulation of Dismissal.

However, EPA’s surprise withdrawal came less than a week after the unanimous decision in Sackett.

The Court’s decision in Sackett contains some very broad language regarding compliance orders as a “final agency action” subject to judicial review. Writing for the majority, Justice Scalia states“[t]here is no doubt [the compliance order] is agency action” and further, “[i]t has all the hallmarks of APA finality that our opinions establish.” Justice Scalia noted that the key to the case was the fact that the Clean Water Act does not, as the EPA erroneously claimed, preclude judicial review under the Administrative Procedure Act. Assuming other environmental statutes like the Safe Drinking Water Act do not preclude review under the APA, the Sackett opinion leaves open the argument that if the hallmarks of “final agency action” are present, pre-enforcement review may be an option.

While EPA did not expressly say it, it is easy to surmise that the holding in Sackett or the clear rebuke from the Supreme Court had at least something to do with EPA’s withdrawal of the order against Range Resources.

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