In legal circles, it is often said that when reading Supreme Court decisions, the most interesting information can be found in the footnotes, the dissents, and the concurring opinions. The April 2012 decision in Sackett v. EPA confirms that advice. Concurring with Justice Scalia’s
majority opinion, Justice Alito succinctly summed up his views on EPA’s wetlands and Clean Water Act (“CWA”) enforcement practices:
The position taken in this case 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 the Environmental Protection Agency (EPA) employees.
The reach of the Clean Water Act is notoriously unclear. Any piece of land that is wet at least part of the year is in danger of being classified by EPA employees as wetlands covered by the Act, and according to the Federal Government, if property owners begin to construct a home on a lot that the Agency thinks possesses the requisite wetness, the property owners are at the Agency’s mercy. The EPA may issue a compliance order demanding that the owners cease construction, engage in expensive remedial measures, and abandon any use of the property. If the owners do not do the EPA’s bidding, they may be fined up to $75,000 per day . . . And if the owners want their day in Court to show that their lot does not include covered wetlands, well, as a practical matter, that is just too bad. Until EPA sues them, they are blocked from access to the courts, and the EPA may wait as long as it wants before deciding to sue. By that time, the potential fines may easily have reached the millions. In a nation that values due process, not to mention private property, such treatment is unthinkable.
As given voice by Justice Alito, property owners, developers and other businesses finding themselves entangled in EPA investigations and enforcement actions recognize one of the most frustrating problems is the inability to get concerns in front of a judge. In a variety of regulatory matters, EPA’s position is that judicial review is not available unless or until EPA files a formal enforcement action seeking what are likely to be enormous penalties. In the Sackett case, a unanimous United States Supreme Court has reigned in some of EPA’s authority.
In the Sackett decision, the Supreme Court makes it clear that property owners have a right to sue EPA to challenge orders to stop development that EPA argues will damage wetlands. Refuting EPA’s position that property owners cannot seek judicial review unless EPA sues, the Supreme Court held that recipients may seek judicial review as soon as they receive a wetlands compliance order they believe to be erroneous.
The key facts of the case are straightforward. The Sacketts wanted to construct a home on their land in an Idaho subdivision. After learning of the Sacketts’ activities, the regional office of the EPA sent the Sacketts a “compliance order,” which included the key finding that their property was a wetland, and instructed the Sacketts to cease construction and restore the property. The Sackets disagreed with EPA’s order, and sought to have a court review it. EPA argued compliance orders may not be reviewed by courts.
The case has more to do with legal procedure than with the substance of EPA’s approach to wetland delineation, and there are important legal issues that need to be satisfied prior to a property owner filing suit. The bottom line, however, is that at least in the area of Clean Water Act (“CWA”) compliance orders, property owners may have their day in court.
Importantly, the Supreme Court did not rule on whether the Sacketts’ property is a wetland or not. That is left for later determination. Similarly, the Court did not find a due process violation; a holding that would have had implications across a wide range of regulatory programs. There are, however, two key legal components to the decision to be understood. First, the Court held EPA compliance orders issued under the CWA constitute “final agency action” under the federal Administrative Procedures Act. Second, the Court held that the Clean Water Act does not preclude judicial review of compliance orders, once issued.
The first component of the Supreme Court’s decision is critical, but ultimately was easy for the Court to decide. The compliance order issued to the Sacketts imposed legal obligations, and was “final” because there was nothing more the Sacketts could have done to contest EPA’s decision. At oral argument EPA conceded that a compliance order includes all of the hallmarks of “finality.” Footnotes 2 and 3 of the Supreme Court decision (It is always critical to read the footnotes) make it clear that the Supreme Court was simply relying upon the position taken by the government in order to determine that the compliance order was “final agency action.”
Next, EPA argued a CWA compliance order is not reviewable by the courts because judicial review hinders EPA from achieving its regulatory goals. EPA conceded that the CWA does not explicitly preclude courts from reviewing CWA compliance orders, but argued that it is the implication of the statute that the courts may not intervene. The Supreme Court had little difficulty rejecting EPA’s position. The Court found that in the absence of an explicit statement in the CWA precluding judicial review (such as is found in the federal Superfund Statute), judicial review is authorized.
The question remaining is what might EPA do differently to avoid this situation in the future, and what can property owners and developers do in response. Only time will tell how EPA will respond, however, several options appear most likely to be used. First, EPA can issue documents that do not constitute “final agency action,” and therefore avoid having its position reviewed by a Court. For example, EPA can issue a notice of violation or a “warning letter” placing a property owner on notice of EPA’s position with respect to construction activities that might be planned. EPA might also issue an administrative order rather than a compliance order, in which case judicial review would be on the administrative record. In the case of an administrative order, the question for the Court would be whether the Agency’s action was “arbitrary and capricious,” typically a higher standard for a property owner to meet than would be the case if a compliance order were challenged.
For property owners, one option available is to seek a CWA jurisdictional determination from the Army Corps of Engineers ahead of development activity. Pursuant to a Memorandum of Understanding with EPA, if the Corps determines there is no jurisdiction for a proposed development, that finding is binding upon EPA for a period of years. If the Corps determines that jurisdiction does exist, then the developer knows to file a wetlands permit application.
Despite Justice Alito’s harsh view of EPA, the Supreme Court did not hold that the Sacketts will ultimately win, but instead simply sent the case back down to the lower court for further proceedings. In the end, EPA lost one battle and got a clear understanding of at least one Justice’s pointed criticisms, property owners and developers learned some valuable lessons, and the Sacketts will now have their day in court.