“If you mention extortion one more time …” D.C. Circuit Court Holds CERCLA Unilateral Orders Constitutional

July 8, 2010

Last week, the D.C. Circuit Court of Appeals in General Electric Company v. Jackson, – F3d –, 2010 U.S. App. LEXIS 13223 (DC Cir. 2010) ruled definitively that the U.S. Environmental Protection Agency’s (EPA) authority to issue unilateral administrative orders (UAO) under Section 106 of the Comprehensive Environmental Response Compensation and Liability Act, (CERCLA; 42 U.S.C, 9606) was constitutional, both on its face and as generally applied. After 30 years, this was the last of the major challenges to the constitutionality of EPA’s broad powers under CERCLA, and like all prior challenges, it was denied.

The UAO is probably the nastiest weapon in EPA’s CERCLA arsenal. EPA uses UAOs to force potentially responsible parties (PRPs) to implement specified response or remediation plans at contaminated sites. Once the EPA issues a UAO, a PRP faces a gruesome choice. It can comply, typically at a substantial cost running into millions of dollars, and if it believes it was not responsible for the costs, it may seek to recover the money spent from the Superfund.

If the PRP chooses not to comply, it faces penalties of up to $37,500 per day and the possibility that EPA will perform the work on its own and sue to recover its costs which usually include at least a 50% markup, even assuming the work is done efficiently. If the PRP’s non-compliance is deemed willful, courts can award EPA treble damages (i.e., treble the cost of its already marked up cleanup). The one thing a PRP cannot do is challenge the UAO. CERCLA specifically precludes any pre-enforcement appeal of EPA orders. GE’s discovery documented the not surprising fact that 95.4% of the PRPs to whom UAOs had been issued decided to comply.

The D.C. Circuit made short work of GE’s contention that these enormous consequences violated the Fifth Amendment’s due process protections by intimidating PRPs from choosing not to comply with the order as their only means of judicial review. The court ruled that a district court’s de novo review of the order and its discretion in issuing penalties or treble damages provided sufficient protection for a PRP choosing non-compliance.

The court similarly held that the UAO process provided GE with sufficient protection for its “consequential damages,” (i.e., the damage to its reputation, stock price and financial standing as a result of EPA’s issuance of the UAO and GE’s decision to challenge the UAO by refusing to comply). The court held that GE’s “as applied” claim failed because the court’s ruling on GE’s consequential damages claim rendered GE without a protectable property interest. For good measure, the court found that the mere fact that only 4.6% of the PRPs chose not to comply, had no real bearing on whether EPA inappropriately issued UAOs.

Longtime CERCLA practitioners are not surprised by the decision. The broad language of CERCLA and the importance of addressing hazardous sites always encouraged courts to give EPA exceptional discretion despite the frequently unfair results. Some recent decisions, including the Supreme Court’s decisions in Aviall and Burlington Northern indicated that courts might start taking a fresher and harder look at both the language and process of CERCLA, and rein in some of EPA’s more draconian tendencies in implementing the statute.

Yet the court’s decision here reverts to the earlier mode of easy approval of EPA excess by elevating the theory of post hoc judicial discretion over EPA’s practice. This decision is probably the final word on this issue as Supreme Court review is unlikely. Other circuit courts have come to similar conclusions, and there is no statutory interpretation issue of the sort on which the Supreme Court likes to focus. As a result, the UAO stays in EPA’s arsenal, as nasty as ever.