EPA Compliance Orders Held Unconstitutional

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On June 24, 2003 the Eleventh Circuit Court of Appeals issued a decision that has the potential to fundamentally change the way the Environmental Protection Agency (EPA) conducts enforcement. The Tennessee Valley Authority (TVA) has been locked in a high profile dispute with EPA for several years related to whether projects it undertook at several of its coal fired power plants violated the Clean Air Act's New Source Review program. (see Wood, Insider #289). Specifically, EPA believed that TVA had made major modifications at its plants while TVA argued that the projects were routine replacement, maintenance and repair and, therefore, exempt from New Source Review.

EPA issued TVA an Administrative Compliance Order (ACO) requiring it to identify modifications made without permits, apply for New Source Review permits and enter into a compliance schedule with EPA. After the ACO was endorsed by EPA's Environmental Appeals Board, TVA appealed to the federal appeals court. The resulting June 24th opinion harshly criticized EPA, concluded that ACOs are an unconstitutional deprivation of a citizen's right to due process and an unconstitutional delegation of authority, and dismissed the case. Tennessee Valley Authority v. Whitman, 11th Cir. No 00-15936. This article examines this startling outcome and suggests what the decision might mean to EPA enforcement under a variety of programs.

EPA and ACOs

EPA has four means established under the federal Clean Air Act (CAA) for responding to perceived noncompliance. First, EPA can request that the Justice Department prosecute the suspected wrongdoer criminally under CAA Section 113(a)(3)(D). Second, EPA can file suit in federal court and seek fines and/or injunctive relief under CAA Section 113(b). Third, EPA can file an administrative action seeking fines, that are litigated similarly to actions processed through federal court, under CAA Section 113(d). Under any of these three options, a suspected wrongdoer can have its day in court and seek to demonstrate that EPA was wrong in alleging violations.

EPA has a fourth option-EPA can issue a Notice of Violation and then, after 30 days have passed, file an ACO under CAA Section 113(a)(1), ordering the suspected wrongdoer to take and/or cease particular actions. A variation on this authority is EPA's ability to issue an ACO under CAA Section 113(5)(A) immediately prohibiting a source from constructing if EPA believes that the source lacks an adequate New Source Review permit. Under either of these last two options, the ACO acts as an injunction. While EPA cannot impose penalties through an ACO, if it issues an ACO and the alleged wrongdoer fails to do exactly as told, that party is subject to civil and criminal penalties. What made this authority particularly offensive to the Eleventh Circuit is that the court concluded that ACOs are exempt from judicial review and so any challenge to the penalties imposed should consider only whether the party complied with the ACO, not whether the ACO was appropriately issued.

Background to TVA Enforcement Action

Starting during the Clinton administration, EPA brought a number of highly publicized judicial enforcement actions against the coal-fired utility industry. One of the targeted utilities was TVA. However, because TVA is not a private entity, but rather is a government agency akin to the Bonneville Power Administration, EPA believed that it could not bring a judicial enforcement action against TVA (the courts subsequently held EPA's legal conclusion that it couldn't sue TVA was wrong but that does not directly affect this decision). Because it believed it couldn't sue TVA in court, EPA issued an ACO ordering TVA into compliance with the new source review provisions of the federal Clean Air Act. As noted above, an ACO requires the recipient to take particular actions, or cease particular actions, upon threat of fine or imprisonment.

TVA objected that it was not out of compliance with New Source Review, and refused to comply with the ACO. Having already taken the position that it couldn't sue TVA in court, EPA created a scheme whereby it enlisted the EPA's Environmental Appeals Board to review the ACO and determine whether TVA really violated New Source Review. The Environmental Appeals Board made up procedures for this first-of-its-kind adjudication, and ultimately concluded that TVA had violated New Source Review by implementing projects that TVA contended were exempted-routine replacement, maintenance and repair activities. TVA appealed the Environmental Appeals Board's decision to the U.S. Court of Appeals for the Eleventh Circuit. TVA sought to have the Environmental Appeals Board's decision overturned as arbitrary and capricious, but instead the Eleventh Circuit went much farther.

The TVA Decision

To say that the Eleventh Circuit held EPA's handling of this case in somewhat less than high regard is a dramatic understatement. Throughout the opinion, the judges criticized EPA's ad hoc approach, its overstatement of its own authority and its two-faced dealings with the courts. The court quickly reached the conclusion that if EPA's argument was accurate-ACOs are not subject to direct review-then the use of ACOs is not consistent with due process.

The court recognized that Congress gave EPA two types of injunctive order authority. One type is carefully limited to specific circumstances and has only a limited (60 day) duration. The other type of order available to EPA, the ACO, can be issued without any of the limitations imposed on the first type of orders. The court repeatedly emphasized that the standard for issuing an ACO is that EPA acts "...on the basis of any information." The court stated that so long as EPA had some bit of information suggesting a violation, then the ACO requirements are met. At that point, the ACO would be valid and any noncompliance with an ACO would lead to civil or criminal prosecution. As the court stated, "If the EPA issues an ACO, it can always avoid the arduous task of proving the violation in court. The ACO appears to be a loophole of the highest order." The court goes on to say that with this type of authority, EPA would rarely feel compelled to compromise and suggested that whenever the agency lacks facts sufficient to prove a violation to a court, it would simply proceed with an ACO.

EPA belatedly argued in the case that ACOs really don't have the force of law, i.e. they cannot be directly enforced. The court, however, took them to task on this point. EPA repeatedly argued that ACOs do not constitute "final" action and thus, cannot be reviewed by the courts. In making this argument, EPA stated that ACOs "...do not impose legally binding rights or obligations on the part of their recipients." The court noted that this was contrary not only to the statutory language, but also contrary to the threatening language EPA has routinely employed in cover letters for ACOs, stating that failure to comply will expose the recipient to civil and criminal penalties. The court questioned EPA's motives, wondering why EPA would provide one interpretation to the court and an opposite interpretation to alleged violators. The court suggested an answer to this question when it said: "One possibility is that the EPA likes to have its cake and eat it too--employing the CAA when confronting a recalcitrant party, but hesitant to reveal the legal significance of ACOs in court for fear that the very part of the CAA that makes ACOs so effective will be struck down." Harsh words indeed from a federal court to an agency.

After criticizing the ACO scheme and EPA's defense of ACOs, the Eleventh Circuit evaluated how other courts have handled ACO challenges. The court opined that the majority of courts have "...underappreciated the legal significance of ACOs." The Eleventh Circuit stated that the courts in those decisions have either considered the recipient of an ACO to have the right to challenge the underlying allegations once a suit is brought to seek enforcement of the ACO, or considered the ACO to have no legal significance. The Eleventh Circuit ultimately voiced the opinion that these decisions are not consistent with the plain meaning of the statute.

The Eleventh Circuit recognized that the vast minority of decisions, two to be exact, have held that an ACO can be judicially reviewed prior to EPA seeking penalties for noncompliance with the ACO. Of great interest is the fact that one of these cases is a recent case from Alaska, challenging EPA's order that an Alaskan facility not proceed with construction because EPA believed that the New Source Review permit was inadequate. That case is currently being considered by the U.S. Supreme Court. The Eleventh Circuit pointed out that the appeals court in the Alaska suit, as well as the other case in this category, failed to grapple with the constitutional problems underlying the issuance of ACOs.

After concluding that the other courts failed to consider the important constitutional issue of whether ACOs are legitimate in the first place, the Eleventh Circuit held that the ACO process deprives a regulated party of a reasonable opportunity to be heard and present evidence. The court went on to say that EPA cannot try to salvage ACOs by allowing some type of pre-ACO hearing because the underlying standard--which only requires that EPA have "any information" suggesting a violation--is too broad and because this approach would unconstitutionally delegate judicial power to the administrative branch, i.e., EPA.

The court's ultimate conclusion is that if EPA wants to seek enforcement, be it penalties or an injunction, the administrative order process under Section 113(a)(1), and presumably under Section 113(a)(5)(a) as well, is not allowable. Instead, EPA must proceed under one of its other three routes and bring suit in a court or through a formal agency adjudicative proceeding. Sending an order and threatening dire consequences if the order is not followed just doesn't pass constitutional muster.

Impact of TVA Decision

The TVA decision technically only applies to Clean Air Act ACOs in those four states that make up the Eleventh Circuit (Georgia, Alabama, Florida and Mississippi). However, it has potential applicability in other program areas as well as other states. The court repeatedly referenced the Clean Water Act in its decision and emphasized the similarities between the two statutes. This suggests that the decision should be transferable to the Clean Water Act context and, perhaps, to other program areas as well, such as hazardous waste and CERCLA (where similar orders are frequently used). Likewise, the decision calls into question state statutes authorizing the issuance of orders substantially similar to ACOs.

EPA may ultimately choose to ignore the decision in other circuits. However, the decision is well reasoned and is likely to receive careful consideration from judges in other parts of the country. In addition, it could have a powerful influence on the U.S. Supreme Court in the Alaska case mentioned above. Because this is an issue of subject matter jurisdiction, the Supreme Court can consider the constitutionality argument even if that argument has not been raised by the parties in lower courts. In fact, that is just the sort of point the Supreme Court would typically address. At this time, however, sources outside the southeast should carefully consider their legal rights in evaluating how to respond to an ACO.

The TVA litigation has been in process for four years and is unlikely to end with this decision. EPA may request that the entire Eleventh Circuit review the decision or it may ask the U.S. Supreme Court to overturn the Eleventh Circuit. It is unusual for either request to be granted. Where a decision eliminates a major enforcement tool frequently used (and many say abused) by EPA, the unusual should be expected.

Key Contributors

Thomas R. Wood
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