DC Circuit Set to Consider the Constitutionality of CERCLA UAOs – Again

The Court of Appeals for the District of Columbia will soon take up both a facial and a “pattern and practice” constitutional challenge to EPA’s issuance of unilateral administrative orders (UAOs) under section 106 of CERCLA. The appeal in General Electric v. Jackson,[1] is the latest step in this long-standing constitutional challenge to the CERCLA statute brought by General Electric (GE), which was filed almost ten years ago and is now before the D.C. Circuit for the second time.

GE maintains that EPA’s issuance of UAOs without a pre-deprivation hearing violates the Due Process Clause. While this argument has been advanced before in different circumstances, GE is now pressing its claims in light of extensive discovery of EPA’s patterns and practices in issuing UAOs at multiple Superfund sites across the country. EPA has countered that CERCLA’s UAO provisions give potentially responsible parties (PRPs) a right to judicial review before they are forced to pay fines of incur cleanup costs, and that pre-hearing reductions in stock price, increases in financing costs, and adverse effects on brand reputation occasioned by issuance of a UAO do not qualify as property deprivations protected by the Due Process Clause. Oral argument in the case of was originally scheduled for February 12, but was recently set over by the court and has not yet been re-set as of the date of this article.

Background and Procedural History

GE filed its original complaint on November 28, 2000, seeking a declaratory judgment that CERCLA’s UAO regime, as embodied in section 106 and the “related statutory provisions” of sections 107(c)(3) and 113(h) of CERCLA, violate the Fifth Amendment’s Due Process Clause. While GE alleged that EPA had made numerous errors in issuing UAOs at various GE facilities, it claimed that it was “not … challenging any specific order” that EPA had issued.[2]

In March 2003, the district court dismissed GE’s initial complaint for lack of jurisdiction,[3] finding that section 113(h) precluded review of GE’s “broad, preenforcement constitutional challenge to CERCLA’s administrative order regime.”[4] GE appealed the district court’s judgment, arguing that section 113(h) did not bar facial challenges and that it was challenging “the constitutionality of the CERCLA statute itself, irrespective of any EPA order or action taken pursuant to either § 104 or § 106(a).”[5]

The D.C. Circuit reversed the district court, holding that section 113(h) bars “any challenges to removal or remedial actions under § 104 or any orders under § 106(a), [but] not … facial constitutional challenges to the CERCLA statute itself. … We hold that the plain text of § 113(h) does not bar GE’s facial constitutional challenge to CERCLA.”[6] In so doing, the court distinguished “between facial or ‘systemic,’ and as-applied or particularized challenges,” relying on Supreme Court precedent that allowed “general collateral challenges to unconstitutional practices and policies” under another statute with a similar bar against challenges to a single government action.[7]

On remand, GE pressed both a facial challenge and a “pattern and practice” challenge to EPA’s method of administering CERCLA, arguing that EPA’s issuance of UAOs to PRPs without a prior hearing “denies PRPs the necessary protections of procedural due process.”[8] While the district court rejected GE’s facial due process claim, it did allow GE to proceed with the pattern and practice claim, over EPA’s objections. The court reasoned that its previous decision allowing a facial constitutional challenge also allowed for “a broader systemic challenge” to EPA’s administration of CERCLA.[9]

Based on this decision, GE sought broad discovery of EPA’s patterns and practices in issuing UAOs, including discovery of EPA guidelines, training materials, internal workgroup discussions, CERCLIS database statistics, and site-specific files for a sample of UAOs issued by EPA after January 12, 2001, arguing that, because it was now challenging “improper patterns and practices” it could examine more than just “public actions and public statements.”[10] GE convinced the district court that it was entitled to review of “internal deliberations of EPA officials as they considered how they could administer their Section 106 authority to achieve … improper ends.”[11] According to the United States, this discovery generated 20,000 responsive documents, of which 13,000 were originally produced to GE.[12] Multiple discovery disputes generated additional opinions from the district court, resulting in the production of thousands more documents previously withheld on grounds of privilege.[13] A number of EPA officials were deposed, and their testimony was featured prominently in GE’s briefing to the D.C. Circuit.[14]

Following completion of two years of discovery, the parties cross-moved for summary judgment. The district court once again granted summary judgment to EPA, finding that while the UAO process does result in pre-hearing deprivations of protected property rights, “GE has not shown that EPA’s pattern and practice of administering section 106 of CERCLA violated due process.”[15] It is this decision that generated the most current appeal to the D.C. Circuit.

GE Claims a Violation of Constitutionally Protected Due Process

Whenever EPA determines that an environmental cleanup is required at a contaminated site, it may pursue one of three paths. First, EPA may conduct the cleanup itself and then initiate a suit in federal district court to recover the costs of the cleanup.[16] Second, EPA may file an abatement action in federal district court to compel a PRP to conduct a specified response action.[17] Third, EPA may issue a UAO compelling a PRP to conduct a specified response action without court involvement.[18] If EPA elects to pursue either of the first options, then the PRP has a right to judicial review and “GE does not contest EPA’s exercise of its authority under either of these two statutory alternatives.”[19] Instead, what GE takes issue with is EPA’s issuance of UAOs without any opportunity for a prior hearing.

According to GE, when presented with a UAO, a PRP has only two options: it can comply with the UAO, “in which case it has no opportunity to challenge the UAO through a meaningful hearing until the response action is completed (a period lasting on average more than 3 years) and then seek reimbursement only of a portion of its UAO-related costs.”[20] Alternatively, the PRP “can refuse to comply with the UAO, in which case it again has no opportunity to challenge the UAO through a meaningful hearing and is subject to penalties of $32,500 for each day of noncompliance and, once the response is performed by EPA, to punitive treble damages on top of the costs of the ordered response action. The PRP must sit in limbo as these fines accumulate until EPA brings an enforcement action, which EPA can file at its sole discretion as late as five years after the date of the ‘violation.’”[21]

GE maintains that, irrespective of which option the PRP chooses, it is faced with a deprivation of its property rights before any hearing. If it complies with the UAO, a PRP will incur, on average, $4.4 million in paying for the costs of the response action.[22] A PRP that elects not to comply with the UAO also suffers pre-hearing property losses, though these come in the form of impacts to the PRP’s market value, its costs of financing and impacts to its brand name. In support of this argument GE cited to expert reports, as well as the testimony of EPA’s own expert economist, which demonstrated, among other things, that a PRP which chose not to comply with a UAO would face an immediate impact on its stock price as soon as the market becomes aware of that decision.[23] In response to these same arguments, the district court held that these deprivations “are sufficiently large and have enough collateral effects to constitute weighty private interests.”[24] By contrast, GE argues that the government’s interest in avoiding a hearing is minimal.[25]

EPA Counters that CERCLA Provides for Judicial Review Where Appropriate and that the District Court Either Lacked Jurisdiction or Properly Rejected GE’s Pattern and Practice Claim

Responding to GE’s position, the United States advances two primary arguments: (1) that CERCLA provides sufficient judicial review for deprivation of any “legitimate” property interest (maintaining that stock price fluctuations and increased cost of financing were not cognizable property interests) and (2) that GE’s pattern and practice claim was either outside the district court’s jurisdiction or was properly rejected on the merits.

EPA maintains that “CERCLA satisfies due process by guaranteeing PRPs a right to judicial review before they suffer any deprivation of [any property] interests,” which “must be a legitimate claim of entitlement created by law, not a unilateral expectation.”[26] EPA noted that a company that receives a UAO does not have to comply with it and that, to force compliance, EPA would have to file a civil enforcement action.[27] During such an action, the PRP is able to challenge the UAO as arbitrary and capricious, or maintain that the UAO violates the PRPs due process rights. In addition, PRPs that comply with UAOs may seek recovery of their cleanup costs from EPA and, if EPA denies recovery, they can initiate litigation. As for fines issued for non-compliance, “only a court can impose those fines, and then only after concluding: (1) that the company is liable under CERCLA; (2) that the UAO was valid; and (3) that the recipient lacked ‘sufficient cause’ for refusing to comply.”[28]

EPA also argues that the Due Process Clause does not offer protection from a fluctuation in a company’s stock price or any reputational injury that might be traced to government action. The government noted that this kind of effect frequently arises when government alleges damaging facts or releases information that tends to harm a person’s financial interests, arguing that courts have held that the Due Process Clause does not protect individuals from “market reactions.”[29]

EPA also attacked the “pattern and practice” claim that the district court had allowed GE to press (even though ultimately rejecting it). First, EPA maintained that the district court lacked jurisdiction to consider that claim based on the application of section 113(h).[30] EPA also argued in the alternative that the district court correctly rejected GE’s pattern and practice claim on the merits.[31] The district court had held that GE was not able to show a rate of error sufficient to sustain its claims, and also that EPA’s administration of CERCLA provided PRPs with a sufficient notice and opportunity to meet the case against them.

Prior Decisions Rejecting Due Process Challenges to UAOs Highlight Potential Significance of this Case

Notwithstanding GE’s earlier victory before the D.C. Circuit, which allowed its facial and pattern and practice challenges to proceed, every court that has addressed the question has found that EPA’s issuance of UAOs to PRPs do not violate due process. EPA highlighted the fact that decisions from the Second Circuit,[32] Seventh Circuit,[33] and Ninth Circuit[34] and two district courts[35] have all rejected similar claims: “As GE itself concedes, every court that has examined CERCLA has held that its judicial review provisions insulate UAOs from due process concerns.”[36] GE conceded this point in its briefing,[37] but maintained that the district court’s findings of pre-hearing deprivation and lack of emergency demonstrate the errors of these decisions. GE distinguishes this prior precedent by noting that its case is the first to be presented on an extensive record developed during discovery and highlighting the D.C. Circuit’s earlier decision allowing a facial and pattern and practice challenge notwithstanding the strictures of section 113(h).

Given this history, if the D.C. Circuit accepts GE’s position, it will be truly be setting a new course for CERCLA jurisprudence. Whatever the outcome, a petition for certiorari is likely.

For more information, please contact Steve Jones or any other member of our Litigation practice group.