GE’s Constitutional Challenges to the UAO Regime Rejected By D.C. District Court
The UAO Regime
Under CERCLA, EPA has two primary methods to effectuate hazardous waste cleanup: (1) it can perform the cleanup itself—paying for the cleanup out of the “Superfund”—and then seek cleanup costs from responsible parties; or (2) it can compel PRPs to perform the cleanup. See 42 U.S.C. §§ 9606(a), 9607(a)(4)(A) (For convenience CERCLA §§ 106(a), 107(a)(4)(A)). In using the latter option, EPA may seek either an order from a federal court compelling a PRP to cleanup the site, or it may issue a UAO ordering the PRP to perform the cleanup upon a finding that “there may be an imminent and substantial endangerment to the public health or welfare or the environment because of an actual or threatened release of hazardous substances from a facility.” Id. § 106(a). 10 The UAO is one of EPA’s most useful—and, perhaps, coercive—tools to effectuate cleanup of sites contaminated with hazardous substances. Upon issuance of the UAO, PRPs have few, if any, real options to challenge the order. Section 113(h) of CERCLA deprives federal courts of jurisdiction over a PRP suit challenging a specific UAO until the PRP either (1) complies with the order and performs the cleanup; or (2) chooses not to comply and the order is enforced by EPA in federal court. In the case of the compliant PRP, the § 113(h) jurisdictional bar disappears upon completion of the cleanup and the PRP may seek to recoup its costs from other PRPs under § 107(a), or it may petition EPA for reimbursement of its cleanup costs. Id. §§ 106(b), 113(h). If EPA denies the petition, the recipient may file suit in federal court. In that case, the recipient will prevail only if it demonstrates that it is not a responsible party under § 107(a), or, if it is a responsible party, upon demonstrating that the ordered cleanup was arbitrary and capricious. Id. § 106(b). But, if a PRP chooses not to comply with a UAO, it risks the imposition of very substantial penalties, and in addition, punitive damages. EPA may seek civil penalties up to $37,500 for each day of noncompliance and may also seek punitive damages up to three times “the amount of any costs incurred” as a result of noncompliance. Id. §§ 106(b), 107(c)(3). Penalties cannot be imposed, and punitive damages cannot be awarded, however, if a federal court determines that the recipient had “sufficient cause” for not complying with the order. Id. §§ 106(b), 107(c)(3). Moreover, even absent “sufficient cause,” a federal court has ultimate discretion whether to impose penalties or award punitive damages. Id. § 107(c)(3). Thus, under the UAO regime, PRPs that believe they are not responsible for the ordered cleanup are faced with a dilemma: comply and spend significant sums of money complying with the order in the hopes that the costs can be recouped from EPA or other PRPs, or choose not to comply and risk significant penalties and punitive damages down the road.
GE’S Challenge to the UAO Regime
In 2000, GE filed a complaint in the U.S. District Court for the District of Columbia challenging the UAO regime in two ways: (1) the text of CERCLA facially violates the Due Process Clause, and (2) EPA’s “pattern and practice” of administering the UAO regime under § 106 violates GE’s due process rights. See General Electric IV, 595 F. Supp. 2d at 12. Both claims cleared the § 113(h) jurisdictional bar because such facial or systemic challenges are not challenges to a particular UAO; rather, they are broader systemic challenges to the statute and the UAO regime. See General Electric Co. v. EPA, 360 F.3d 188, 191 (D.C. Cir. 2004) (General Electric II); General Electric Co. v. Johnson, 362 F. Supp. 2d 327, 335 (D.D.C. 2005) (General Electric III). GE’s ultimate goal, sought via its facial or “pattern and practice” claim, was to obtain some form of additional process that would permit PRPs to challenge UAOs upon issuance, without being required to first perform an expensive cleanup or risk substantial penalties and damages.
GE’s Facial Challenge
GE raised three facial challenges to CERCLA’s UAO regime: (1) a PRP is deprived of property without a pre-deprivation hearing, (2) a PRP never receives a meaningful post-deprivation hearing, and (3) the civil fines and penalties that accompany UAOs are so coercive that they constitute a due process violation under Ex parte Young, 209 U.S. 123 (1908). General Electric III, 362 F. Supp. 2d at 337. The court ruled and rejected GE’s facial challenge in 2005. A review of the district court’s ruling in 2005 is important to understanding its subsequent ruling on GE’s “pattern and practice” claim this year.
Deprivation of Property
GE’s initial facial challenge in 2005 that it and other PRPs are deprived of property without the requisite pre-deprivation hearing was based primarily on the due process analysis set forth in Mathews v. Eldridge, 424 U.S. 319 (1976), under which the competing interests are balanced to determine the process required before a deprivation of property or liberty occurs. General Electric Co. v. Johnson, 362 F. Supp. 2d 327, 335, 338 (D.D.C. 2005) (General Electric III). Of course, before the court undertook the Mathews balancing, it first had to decide if, under 11 CERCLA, a PRP suffers a deprivation of property upon the issuance of a UAO. Id. GE argued that the mere issuance of a UAO triggers a deprivation of property because, before the UAO is issued, the PRP has no legal obligation to clean up the site, but once the UAO is issued, the PRP is under a legal obligation to conduct the cleanup, regardless of its response to the UAO. Id. The court, however, rejected GE’s argument and held that EPA’s mere issuance of a UAO does not constitute a deprivation of property because the PRP may choose whether to comply with the UAO, and if the PRP refuses, EPA, under CERCLA, is powerless to deprive the PRP of property without judicial intervention. Id. at 339. Indeed, EPA must file suit in federal court to force compliance with a UAO; thus, a PRP will have an opportunity to be heard before any deprivation of property. Id. at 340. Thus, the district court held that no deprivation of property occurs upon issuance of a UAO and, therefore, did not reach the Mathews balancing. Id. at 341.
Meaningful Post-Deprivation Hearing
GE also argued in its facial attack on Section 106 UAOs that, regardless of when CERCLA provides for a hearing upon the issuance of a UAO, the CERCLA UAO regime still violates the Due Process Clause because it never provides for a meaningful judicial hearing. Id. The remedy provided for in a UAO, when it is reviewable, can only be challenged under the arbitrary and capricious standard. Thus, according to GE, CERCLA does not provide for a meaningful postdeprivation hearing because EPA is not required to bear the burden of persuading an impartial decisionmaker that the specific UAO was the appropriate remedy. Id. The district court rejected GE’s argument. First, the court noted that EPA is required to prove de novo in federal court that the PRP is a liable party. Id.According to the court, the PRP’s ability to obtain de novo review of liability amounts to a meaningful opportunity for judicial review. Id. Second, the court noted that it is well established that judicial review under the Administrative Procedure Act satisfies due process. Id.
Ex Parte Young
GE further contended that the civil penalties and punitive damages imposed under CERCLA for noncompliance are so coercive that the PRP is effectively forced to forgo judicial review of the UAO, amounting to a violation of due process under Ex parte Young. Id. at 342. Under Ex parte Young, a statutory scheme that imposes penalties when one seeks judicial review violates due process if “the penalties for disobedience are by fines so enormous . . . as to intimidate the company and its officers from resorting to the courts to test the validity of the legislation.” Ex parte Young, 209 U.S. 123, 147 (1908). A “good faith” defense, however, is a firmly recognized method of saving a statute that imposes penalties upon a party seeking judicial review. General Electric III, 362 F. Supp. at 342. Thus, according to the court, the ability of a PRP under CERCLA to avoid penalties and punitive damages if it had “sufficient cause” for noncompliance with the UAO, combined with a federal court’s ultimate discretion to impose penalties or punitive damages regardless of whether the PRP had “sufficient cause,” cured any constitutional deficiency based on Ex parte Young. Id.
Salerno Doctrine
Finally, the court also assessed GE’s facial challenge under the Salerno doctrine, which mandates that a court uphold a statute against a facial challenge if the plaintiff cannot show the statute is unconstitutional in every application. Id. at 343. According to the court, the § 106 regime is certainly at least constitutional in emergency situations. Id. at 344. Thus, under the Salerno doctrine, the court determined that, even if GE was correct that the CERCLA UAO regime offends due process in some settings, its constitutionality in the emergency situation defeats GE’s facial challenge. Id.
GE’s “Pattern and Practice” Challenge
Although the court rejected GE’s facial challenge in 2005, the court permitted GE’s “pattern and practice” claim to continue and permitted extensive discovery on that remaining claim. In its “pattern and practice” claim GE argued that EPA’s administration of the UAO regime under § 106 of CERCLA violates due process. 12 GE asserted that under the Mathews framework, § 106 as administered deprives PRPs of protected liberty and property interests without a hearing, and further asserted that in practice PRPs are forced to comply with UAOs in violation of Ex parte Young. Ultimately, GE, through its “pattern and practice” claim, sought additional pre-issuance process, in front of a neutral decision-maker, that would permit PRPs to challenge UAOs before they are issued. GE’s constitutional claims in its “pattern and practice” allegations sound remarkably similar to those asserted under its “facial” attack of the statute. But, these claims were made to the EPA practice of administering Section 106 and escaped some of the requirements imposed on purely facial challenges pursuant to the Salerno doctrine. As an initial matter, the court determined that the Salerno doctrine was not applicable to GE’s “pattern and practice” claim. General Electric IV, 595 F. Supp. 2d at 15. According to the court, the Salerno doctrine applies to facial constitutional challenges only because such challenges are based on hypothetical applications of a statute and not on a set of particular facts. Id. In contrast, GE’s “pattern and practice” claim is not based on a hypothetical application of § 106; rather, it is based on how EPA actually administers § 106. Id. The district court then addressed GE’s constitutional claims.
Ex Parte Young
The court ultimately rejected GE’s “pattern and practice” claim under Ex parte Young for the same reasons it rejected GE’s facial challenge under Ex parte Young: CERCLA provides a PRP with a “sufficient cause” defense and also provides a court with ultimate discretion regarding penalties and punitive damages. Id. at 17. GE attempted to distinguish its “pattern and practice” claim from its facial challenge by noting that four aspects of EPA’s UAO policy intimidate PRPs into compliance: EPA seeks maximum penalties for noncompliance, EPA seeks multiple penalties for violations at a single UAO site, EPA rejected Justice Department advice that EPA should impose a cap on daily penalties, and EPA labels noncomplying PRPs as “recalcitrant.” Id. at 17-18. But, according to the court, regardless of what EPA does or seeks, a judge ultimately decides what, if any, penalty to impose. Id. GE also argued that EPA’s “pattern and practice” of compiling the administrative record creates an incomplete basis for a reviewing judge’s decision, thereby impairing the court’s ability to exercise its ultimate discretion regarding penalties and punitive damages. Id. at 18. GE specifically cited EPA’s “pattern and practice” of excluding irrelevant and predecisional documents from the administrative record. Id. The court noted, however, that irrelevant documents should be excluded from the record, and agencies may exclude material that reflects internal deliberations. Id. Regardless, the court held that GE had not demonstrated that EPA actually has a “pattern and practice” of excluding documents that should be included in the record. Instead the court noted that GE could only demonstrate two “anecdotal examples” of failure to include documents, a demonstration which the court held was insufficient to form a “pattern and practice” by the agency. Id. at 18-19. Finally, GE argued that EPA has failed to issue guidance regarding the “sufficient cause” defense, thereby purposefully muddling the contours of the defense, which makes it difficult for PRPs to determine whether they have sufficient cause for noncompliance with a UAO. Id. at 19. Although Ex parte Young problems may arise when the imposition of penalties turns on the interpretation of an imprecise legal standard, the court noted that courts, not agencies, provide interpretations of legal standards, and district courts have done just that. Id. The court held that EPA’s failure to issue guidance on the “sufficient cause” defense does not amount to a coercive “pattern and practice.” Id.
Mathews v. Eldridge
Under Mathews, courts balance the private interests, the governmental interests, and the risk of error to determine whether existing procedures satisfy constitutional due process requirements. Id. at 21. GE argued, under the Mathews framework, that EPA must provide PRPs with additional pre-issuance process before a neutral decision-maker. As with GE’s facial challenge, the court first determined whether the 13 issuance of a UAO deprives PRPs of a property or liberty interest. The court considered three circumstances in which PRPs may be deprived of property or liberty: (1) the mere issuance of a UAO may impact the PRP’s stock price and brand value, (2) if a PRP chooses not to comply with the UAO, then the PRP may suffer increased damage to its stock price and brand value, as well as damaging a PRP’s relationship with regulatory personnel and stakeholders, and (3) if a PRP chooses to comply with a UAO, then the PRP must incur the costs of cleanup. Id. GE submitted expert testimony to argue that the mere issuance of a UAO causes two kinds of property deprivations: reduced stock price and increased costs of financing; and damage to the PRP’s brand value. Id. at 22. The court, however, rejected both arguments. Id. The court noted that damage to stock price and brand value could occur anytime an agency takes any action that may be interpreted as adverse against a company. Id. The court noted that if it accepted GE’s argument, it would be inviting a host of unfounded due process claims. Id. The court, however, did agree with GE that stock price and brand value are damaged when a PRP chooses not to comply with a UAO. Id. at 27. The court based its holding primarily on the fact that a PRP is normally branded a recalcitrant actor once it decides not to comply, which, in turn, harms the PRP’s stock price and brand value. Id. at 22. GE submitted expert testimony on damage to stock price and brand value, which the court considered in regards to the existence of a deprivation, but discounted in regards to the extent of the deprivation. After the court determined that a property deprivation does occur upon a PRP’s noncompliance with a UAO, the court then undertook the Mathews balancing. In regards to the private interests, the court found that the pre-hearing deprivations are primarily financial, which, because they can typically be recouped after a hearing, are less significant. Id. at 31. But the court also found that the financial deprivations did have potentially significant collateral effects on some PRPs—for example, UAOs may put some PRPs out of business or significantly affect their business operations. Furthermore, depending on whether a PRP complies with a UAO, the average length of the deprivation is substantial but unclear. Thus, the court determined that the private interests are weighty, but primarily financial. In determining the government interest, the court considered two factors: (1) whether the government has a special need for very prompt action—the greater the need, the greater the government interest in avoiding additional pre-deprivation process, and (2) the financial and operational cost of additional process and the need to conserve scarce fiscal and administrative resources. Id. at 32. In regards to the first factor, the court found that EPA does not have a special need for very prompt action. Id. EPA does not issue UAOs in true emergency situations, and, thus, UAOs do not require very prompt action. Id. But in regards to costs, the court found that, considering the average number of UAOs issued by EPA per month (an average of six per month), any hearing before a neutral decision-maker would involve significant fiscal and administrative burdens. Id. at 33. When considered in the abstract, the court noted that EPA’s UAO process is indicative of both high and low risks of error. Id. at 34-35. For example, the risk of error is greater when the government stands to benefit from taking action that deprives someone of property, and EPA arguably stands to benefit by issuing UAOs because EPA has an interest in conserving Superfund resources. Furthermore, the risk of error is greater when junior or regional agency staff, without senior or centralized oversight, makes deprivation-causing decisions. Id. at 34. Indeed, UAOs are issued by EPA regional officials without review and approval from EPA headquarters. The court, however, also found that other abstract factors establish that EPA’s UAO process is not prone to error. For example, PRPs are given multiple kinds of notice and have several opportunities to be heard before a UAO is issued. Id. Furthermore, PRPs are typically represented by counsel in negotiations with EPA before a UAO is issued—a factor of great significance according to the court. Id. In regards to concrete evidence of error, the court discounted many of the GE declarations of other errors 14 in UAOs as unsubstantiated or uncorroborated. After discounting much of the evidence proffered by GE, the court found that EPA’s rate of error in issuing UAOs amounted to only 4.4 percent. Id. at 37. The court determined that such is an acceptable rate of error. Id. Finally, the court balanced the private interests, the government interests, and the risk of error to determine whether a neutral decision-maker—an agency presiding officer or an administrative law judge—is constitutionally necessary. Id. The court noted that “[t]he balancing process is dynamic—for example, while greater process could reduce the risk of error, it also adds costs and delay, thereby burdening both government and private interests.” Id. Ultimately, the court determined that the increased burden on the government of providing hearings before neutral decision-makers was not warranted considering the risk of error in the UAO regime is already low and any benefit to the private interests, which, although significant, are primarily financial, would be offset by the additional costs of the enhanced pre-issuance process requested. Id. at 38-39.
Conclusion
The court’s rejection of GE’s facial challenge was expected; indeed, courts have consistently rejected facial attacks on the UAO regime. The court’s decision on GE’s “pattern and practice” claim, however, is, essentially, the first of its kind—other courts have ruled on similar “pattern and practice” claims, but not after the parties conducted years of discovery. The decision, while a significant obstacle to similar challenges in the future, does not end the issue. One potential opening that future challenges to the UAO regime may focus on is the irreparable deprivations that occur when UAOs are issued. For example, UAOs can often put smaller companies out of business. Irreparable deprivations are much more significant in Mathews balancing than mere financial deprivations and may tip the scales such that the private interests are so significant that additional pre-issuance process is warranted.
Radcliffe Dann IV is an associate with Temkin, Wielga, Hardt & Longenecker LLP in Denver, Colorado, where he specializes in environmental law.
Copyright 2009 ABA Constitutional Law Committee Newsletter