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APA: The Scorecard So Far on the Supreme Court’s Sackett Decision

June 24, 2013

Just over a year ago, the U.S. Supreme Court decided Sackett v. EPA,[1] which struck down the ban on “pre-enforcement review” of EPA orders issued under the Clean Water Act (“CWA”). The Supreme Court held in Sackett that an administrative compliance order issued by EPA is “final” for purposes of judicial review under the Administrative Procedure Act (“APA”) and that nothing in the CWA impliedly bars a party from filing suit to challenge such an order before the government initiates a judicial enforcement action. Since the case was decided, six lower federal courts have applied Sackett. What one finds from reviewing these early cases is that:

  • They are fact-specific;
  • They are not limited to the CWA;
  • They turn on the court’s finding of whether the action challenged was “final”; and
  • Whether the agency action is deemed final turns on whether the court sees it “just a step in the deliberative process” or as leaving nothing left to do but to refer the case to a government lawyer to enforce.

A Review of the Sackett Facts

Sackett was issued on March 21, 2012. The unanimous[2] opinion written by Justice Scalia arose from an EPA administrative compliance order issued to Chantal and Michael Sackett. The Sacketts own a 0.63 acre undeveloped parcel in Idaho. In 2007, they filled a portion of their property without a CWA permit. EPA determined that the fill violated the CWA because the parcel contained a “jurisdictional” wetland and issued an administrative compliance order requiring the Sacketts to remove the fill and restore the parcel to its original condition. The Sacketts petitioned EPA for a hearing to challenge the order and, after EPA refused, filed suit in district court. EPA argued that judicial review of the order was barred until EPA filed suit (which it had not) and insisted that the Sacketts comply, threatening penalties if they did not. The district court agreed, and dismissed the Sacketts’ suit for lack of jurisdiction.

The Sacketts appealed to the Ninth Circuit, arguing that: (1) the APA allows pre-enforcement review of CWA compliance orders; and (2) due process requires EPA to allow pre-enforcement review. The Ninth Circuit affirmed the district court, holding that the CWA impliedly barred pre-enforcement review under the APA and that the pre-enforcement bar did not violate due process.[3]

The Supreme Court’s Opinion

The Supreme Court reversed the Ninth Circuit, concluding that a CWA administrative compliance order is “final” for purposes of allowing APA judicial review and that the CWA does not “impliedly” bar such review.[4] The Court decided the issue based on the CWA, and declined to reach the Sacketts’ due process challenge.

First, the APA provides judicial review for “final agency action for which there is no other adequate remedy in a court.”[5] The Court concluded the order was “final” under the APA, because it: (1) “determined” the Sacketts’ “rights or obligations” by requiring them to restore the wetlands on their property; (2) exposed them to legal consequences – specifically stiff penalties for non-compliance; (3) and marked the “consummation” of the agency’s decision-making process because no further agency review was available. Likewise, the Court concluded the Sacketts had no adequate remedy to challenge the order, because – as EPA conceded – the Sacketts had to wait until the EPA brought an enforcement suit to challenge the significant penalties for non-compliance.

Second, the Court decided that the CWA did not “impliedly” bar pre-enforcement review of the order. The APA provides judicial review unless the underlying statute “preclude[s]” such review. [6] Although the CWA does not explicitly bar pre-enforcement challenges, the government argued (and the Ninth Circuit agreed) that the CWA’s structure, objectives, and legislative history evidenced that Congress intended the Act to “impliedly” bar such review.[7] The Supreme Court rejected this argument finding that nothing in the CWA’s structure or legislative history evidenced an intent to overcome the APA’s presumption to allow judicial review.[8]

Lower Court Decisions Involving Sackett

1. Belle Co., LLC v. U.S. Army Corps of Engineers

In Belle Co., LLC v. U.S. Army Corps of Engineers,[9] a district court in Louisiana rejected a developer’s attempt to use Sackett as an avenue to challenge an approved wetlands jurisdictional determination (“JD”) issued by the U.S. Corps of Engineers (“Corps”). A JD is the Corps’ formal procedure for an “affected party” to obtain the agency’s official position regarding the scope of its CWA regulatory jurisdiction over site-specific wetlands. In Belle, a landfill developer requested a JD from the Corps regarding the possibility that there were wetlands subject to CWA jurisdiction on its property.[10] The Corps’ concluded that there were jurisdictional wetlands on the property, issued a JD to that effect, and informed the developer it would need to apply for a CWA § 404 permit to develop the property. Following affirmance on administrative appeal, the developer filed suit in federal district court to challenge the JD. The Corps moved to dismiss, arguing that the JD did not constitute final agency action subject to APA review because although it constituted the consummation of the Corps’ decision-making process on the jurisdictional question, it was not an order by which the developer’s rights and obligations had been determined or from which legal consequences would flow.[11]

The Corps relied on a pre-Sackett 9th Circuit case, Fairbanks North Star Borough v. U.S. Army Corps of Engineers, which held that a JD was not “final” agency action under the APA because it “at most simply reminds affected parties of existing duties imposed by the CWA itself and commands nothing of its own accord.”[12] The developer countered that Sackett had changed the legal landscape and that JDs should now be subject to APA review. The court rejected the developer’s argument, agreeing with the reasoning in Fairbanks and distinguishing Sackett. The court focused on the fact that the Sacketts received a compliance order directing them to remedy CWA violations, while in contrast there was “no evidence that [the developer] had done anything on the Property in violation of the CWA.”[13] Thus, while EPA’s order subjected the Sacketts to potential penalties for non-compliance, the JD involved no such threat of penalties. Given these “factual distinctions,” the court concluded that Sackett was inapplicable.[14]

2. Furie Operating Alaska, LLC v. U.S. Dept. of Homeland Security

In Furie Operating Alaska, LLC v. U.S. Dept. of Homeland Security,[15]an Alaska district court relied on Sackett to hold that a party may obtain pre-enforcement review of a penalty assessed under a federal maritime statute. In Furie, the plaintiff sought judicial review of a $15 million penalty imposed by the Department of Homeland Security (“DHS”) under the Jones Act.[16] DHS imposed the penalty on the company after it used a foreign-owned vessel to transport a drilling rig between two U.S. ports. The Act provides that no “merchandise” may be transported between U.S. ports by a foreign-owned vessel unless the party first obtains a waiver from DHS. Under the Act, DHS may impose a monetary penalty equal to the value of the merchandise being transported (in this case, the drilling rig). Although Furie initially obtained a waiver from DHS, the waiver had expired and DHS refused to renew it. Furie, relying on information that there were no U.S.-owned vessels that could actually transport the rig, began transporting the rig to Alaska prior to DHS’ renewal decision. DHS issued a $15 million penalty to Furie once the rig reached Alaska. Furie filed a petition for mitigation of the penalty and for reconsideration. Both were denied. When DHS demanded payment within 10 days, Furie filed suit in district court challenging the penalty.

The government moved to dismiss, arguing that the penalty is not “final agency action” under the APA until DHS refers the penalty to the Department of Justice and Justice seeks to enforce the penalty in district court.[17] Furie countered that under Sackett, the penalty is final action because there are no further steps in the deliberative process and a penalty does not need to be self-effectuating to be final. The court agreed with Furie, concluding that “[b]ased on the reasoning in Sackett, the Government’s argument that the $15 million penalty is not a final agency action until the Department of Justice initiates a judicial enforcement proceeding is without merit.”[18] The court explained that DHS’ continued assessment of the penalty after rejecting Furie’s mitigation request “is not just a step in the deliberative process when the only actions left to be taken are either payment by Furie or a judicial collection action.”[19]

In addition, the court rejected the government’s argument that the eventual Department of Justice enforcement action provided Furie with an adequate remedy to challenge the penalty. The court noted that Furie could not initiate that proceeding – “[i]n the meantime, while it waits it is subject to a $15 million penalty and possible sanctions for non-payment, and such a substantial liability certainly interferes with its ability to conduct business.”[20] Thus, the court held that Furie was entitled to challenge the penalty under the APA.

3. Hardesty v. Sacramento Metropolitan Air Quality Management District

Hardesty v. Sacramento Metropolitan Air Quality Management District,[21] a California district court case, addressed a question left unanswered by Sackett – whether pre-enforcement review of a CWA cease and desist order issued by the Corps is final agency action, thereby allowing the recipient to sue, notwithstanding the availability of the § 404 permitting process. It concluded that it is.
 
Under the CWA, EPA and the Corps share enforcement authority for statutory violations. In Sackett, EPA ordered the Sacketts to remedy CWA violations on their property. Responding to the Sacketts’ suit for pre-enforcement review, EPA argued that the Sacketts had an adequate remedy to challenge the order because they could request a CWA § 404 permit from the Corps and seek review under the APA if the Corps denied the permit. The Supreme Court in Sackett rejected this reasoning, explaining that “the remedy for denial of action that might be sought from one agency does not ordinarily provide an ‘adequate remedy’ for action already taken by another agency.”[22]

Hardesty is a case in which a mine operator sued federal and state officials, including the Corps, alleging civil rights and due process violations stemming from warrantless inspections that resulted in a cease and desist order. In pre-Sackett briefing, the Corps relied heavily on the Ninth Circuit’s Sackett decision to argue that the CWA impliedly barred review of the Corps’ cease and desist orders issued under the Act. Following the Supreme Court’s decision, the district court reevaluated the Corps’ arguments and concluded that the order was final agency action reviewable under the APA even though the Corps could have potentially issued (or denied) a § 404 permit to the mine developer.[23] The court dismissed the mine operator’s civil rights and due process claims (without prejudice), but granted the operator leave to amend his compliant in light of Sackett.

4. Huntress v. U.S. Department of Justice

In Huntress v. U.S. Department of Justice,[24] a district court in the Western District of New York rejected plaintiffs’ attempt to use Sackett to obtain a preliminary injunction to block the United States’ CWA civil and criminal enforcement actions against them. Huntress is one of four cases arising from allegations of the illegal placement of fill on a 96 acre property in Western New York State. The United States initially filed a civil suit against David Huntress and his associated companies (collectively, “Huntress”), alleging that he illegally discharged fill material without a CWA permit and seeking an injunction to halt work on his property. The United States subsequently sought and received a judicial order to enforce the court’s preliminary injunction after Huntress continued conducting activities on the property. The civil suit was stayed when the United States filed a criminal case against Huntress. However, the court eventually dismissed the criminal indictment on grounds that the government presented improper evidence to the grand jury. Huntress then filed a civil suit against EPA, alleging that the agency acted arbitrarily and capriciously by asserting CWA jurisdiction over the Huntress property, filing the civil and criminal actions, and withholding evidence from a grand jury before the indictment issued. Finally, Huntress also filed a civil action against the United States, seeking an injunction to stop the ongoing civil litigation and any further criminal actions. It was this final case which generated the decision interpreting Sackett.

To obtain a preliminary injunction, the moving party must show both irreparable harm and a likelihood of success on the merits. To show irreparable harm, Huntress relied “principally, if not exclusively,” on Sackett – arguing that “notions of due process” compelled the court to determine the “threshold question” of whether the property was subject to CWA jurisdiction.[25] Rejecting that contention, the court held that Huntress’ Sackett argument was “doomed from the start.”[26] The court focused on one major difference between the cases – the plaintiffs in Sackett had no avenue for judicial review of EPA’s administrative order, while in this case the Department of Justice (on EPA’s behalf) had already filed an action in district court to enforce the administrative order against Huntress.[27] “There can thus be no concern that Plaintiffs are being deprived of judicial review; to the contrary, they have it in spades—this is, after all, the fourth case on this subject being litigated in this Court.”[28] Accordingly, since the pending civil case (or future criminal case) provided Huntress with an opportunity to contest EPA’s CWA allegations, the court concluded that his “due process rights have been, and will continue to be, vindicated in those forums.”[29] Thus, the court denied Huntress’ request for injunctive relief.  

5. Nimmrich & Prahm Reederei Gmbh & Co. KG MS Sonja v. United States

In Nimmrich & Prahm Reederei Gmbh & Co. KG MS Sonja v. United States,[30] the district court for the Southern District of Texas held that a letter submitted by an agency engaged in ongoing negotiations did not constitute final agency action, Sackett notwithstanding. In Nimmrich, the U.S. Coast Guard conducted an inspection of an ocean going vessel, the M/V Susan K, which led the agency to investigate whether the ship’s operators had intentionally discharged oil/pollutants into the sea in violation of the Act to Prevent Pollution from Ships (“APPS”).[31] At the Coast Guard’s request, the U.S. Customs Border Protection Agency withheld customs clearance for the vessel while the investigation unfolded. Pursuant to its regulations, the Coast Guard sent a letter to the vessel’s owners and operators (collectively, “Owners”) informing them of the decision and explaining that Customs would release the vessel if the Owners provided a satisfactory bond. After receiving the letter, the vessel’s Owners began negotiating with the Coast Guard regarding the terms of the bond.[32]

A month later, the vessel’s Owners filed suit in district court, claiming that negotiations had reached an impasse and seeking to have the court fix the terms of the bond. The Owners sought review under the APA in addition to claims under admiralty jurisdiction and the APPS. In support of their APA claims, the vessel’s Owners argued that the Coast Guard’s letter represented final agency action subject to judicial review. The court disagreed, noting that the letter did not constitute “final agency action” as defined by the Coast Guard’s regulations. Moreover, the court explained that the parties’ impasse in the their negotiations could not be said to mark the “consummation” of the Coast Guard’s decision making process, because the agency indicated that it remaining willing to continue negotiations over the terms of the bond.[33] Likewise, the court concluded that the Coast Guard’s rejection of the Owner’s last offer had no immediate legal consequences, because there was no performance or compliance expected of the Owners as a result. The court distinguished Sackett, noting that it involved an economically coercive agency order for which there was no administrative remedy or appeal.[34] In contrast, the Coast Guard’s regulations provided the Owners with both an administrative remedy and an administrative appeal process. Thus, the court held that “Sackett … cannot be read to create subject matter jurisdiction … where the agency action at issue is not final” and dismissed the case.[35]

6. Northeast Medical Services, Inc. v. California Department of Healthcare Services

In Northeast Medical Services, Inc. v. California Department of Healthcare Services,[36] the district court for the Northern District of California concluded that a letter indicating the government’s position that a person may have violated a federal statute was not final agency action subject to APA judicial review. The plaintiff in the case, Northeast Medical Services, Inc. (“NEMS”), is a non-profit health provider in the San Francisco area that receives both federal and state funding to provide health care to underserved populations. Under the Medicare program, the State of California provides NEMS with a series of payments throughout the year that are meant to estimate NEMS’ prospective costs for treating Medicare patients. At the end of the year, NEMS is required by law to report its actual costs to California Department of Health Care Services (“DHCS”) so that the agency may evaluate whether the prospective payments undercompensated (or overcompensated) NEMS for treating the Medicare patients. Though a process known as “reconciliation,” NEMS is required to return excess funds or DHCS must pay NEMS to make up any shortfall in funding.[37]

In 2011, NEMS learned that the Assistant U.S. Attorney for the Northern District of California (“AUSA”) was investigating whether NEMS had knowingly reported false information to DHCS on its annual reconciliation reports.[38] The investigation centered on whether NEMS had underreported the payments it received throughout the year in order to recoup larger reconciliation payments from DHCS. In 2012, the AUSA sent a letter stating that the government’s preliminary review of NEMS’ reconciliation reports supported allegations of improper reporting and rejected NEMS’ proffered reasons for underreporting the payment amounts. However, the letter invited NEMS to discuss the issue further in settlement negotiations.

Rather than engage in settlement negotiations, NEMS filed suit under the APA seeking a declaratory judgment repudiating the AUSA’s interpretation of the Medicare reporting regulations and confirming NEMS’ reading of the regulations. Relying heavily on Sackett, NEMS argued that the AUSA’s letter constituted final agency action subject to judicial review under the APA for two reasons. First, it represented the federal and state agencies’ “current view” regarding how NEMS was supposed to file its annual reconciliation reports.[39] Second, the letter’s effects were “direct and immediate” because it “instilled in Plaintiff the ‘well-founded fear that the state and/or federal government will enforce the positions and interpretations stated therein.’”[40]

The court disagreed. Noting that the parties disagreed whether the letter amounted to agency action at all, the court nonetheless distinguished the AUSA’s letter from the compliance order in Sackett on two grounds. First, the AUSA’s letter was subject to further agency review, because the letter itself indicated that the AUSA was still evaluating whether to take legal action against NEMS. Second, the court concluded that the letter had no impact on NEMS’ legal obligations. According to the court, the letter used noncommittal language - such as NEMS’ actions “seem[] to indicate” that it falsified the reconciliation reports and that NEMS’ conduct “appear[ed] to violate” the federal False Claims Act.[41] Moreover, the letter “was merely speculative and carried no guarantee of future enforcement activity.” Thus, the court concluded it “falls outside the ambit of APA finality and is not subject to judicial review.”[42]

Conclusion

The theme that emerges from the early cases interpreting Sackett is that courts have focused on a case-by-case analysis of whether the agency action challenged subjects the complainant to enforcement, or rather is simply a step in the decision-making process. The answer is often not clear, and different trial courts could go either way, adding uncertainty to the outcome of any challenged action. Courts are most apt to allow pre-enforcement review in cases factually similar to Sackett – cases involving administrative enforcement orders under the CWA. See Hardesty. But the core holding in Sackett could also find a place in challenges to other types of agency action, even outside the environmental context, as it did in Furie. As cases such as Furie demonstrate, the key inquiry continues to be whether the action challenged is “just another step in the deliberative process” or whether the only action left to be taken is government enforcement.

For more information regarding Sackett or the cases mentioned in this article contact any member of our Environmental Litigation practice group.

[1] Sackett v. EPA, 132 S. Ct. 1367 (2012).

[2] Justices Ginsberg and Alito filed concurring opinions.

[3] Sackett v. EPA, 622 F.3d 1139 (9th Cir. 2010).

[4] For more information on the Supreme Court’s decision, see B. Marten, Unanimous Supreme Court Tells EPA Its Orders Can Be Appealed, Marten Law Environmental News (Mar. 23, 2012).

[5] 5 U.S.C. § 704.

[6] 5 U.S.C. § 701(a)(1).

[7] Sackett v. EPA, 622 F.3d at 1142-44.

[8] Sackett, 132 S. Ct. at 1372-74.

[9] Belle Co., LLC v. U.S. Army Corps of Eng’rs, No. 12–247–BAJ–SCR, 2013 WL 773730 (M.D. La. 2013).

[10] 33 C.F.R. § 331.2; see also JDs, Corps Regulatory Guidance Letter 08-02, at 1 (June 26, 2008).

[11] Belle,2013 WL 773730, at *2.

[12] Fairbanks N. Star Borough v. U.S. Army Corps of Eng’rs, 543 F.3d 586, 595 n.10 (9th Cir. 2008) (citation omitted). For more information on Fairbanks, see J. Ferrell, Ninth Circuit Limits Judicial Review of Wetlands Determinations by Corps of Engineers, Marten Law Environmental News (Oct. 29, 2008).

[13] Belle, 2013 WL 773730, at *4.

[14] Id.

[15] Furie Operating Alaska, LLC v. U.S. Dep’t of Homeland Sec., No. 3:12–CV–00158 JWS, 2013 WL 1628639 (Apr. 15, 2013).

[16] See id. at *1 (citing 46 U.S.C. § 55102(b)).

[17] Id. at *3.

[18] Id. at *6.

[19] Id.

[20] Id.

[21] Hardesty v. Sacramento Metro. Air Quality Mgmt. Dist., No. S-10-2414-KJM-JFM, 2012 WL 1131387 (E.D. Cal. 2012).

[22] Sackett, 132 S. Ct. at 1374.

[23] Hardesty,2012 WL 1131387 at *14.

[24] Huntress v. U.S. Department of Justice, No. 12–CV–1146S, 2013 WL 2297076 (W.D.N.Y. May 14, 2013).

[25] Id. at *4.

[26] Id.

[27] Id.

[28] Id.

[29] Id. at *6.

[30] Nimmrich & Prahm Reederei Gmbh & Co. KG MS Sonja v. United States, No. H–12–1142, 2012 WL 1641009 (S.D. Tex. May 9, 2012).

[31] Id. at *1 (citing 33 U.S.C. § 1901–1915).

[32] Id. at *2.

[33] Id. at *4.

[34] Id. at *5 (citing Sackett, 132 S. Ct. at 1372).

[35] Id.

[36] Ne. Med. Servs., Inc. v. Cal. Dep’t of Healthcare Servs., No. C 12–2895 CW, 2013 WL 428721 (N.D. Cal. Feb. 1, 2013).

[37] Id. at *1.

[38] Id. at *2.

[39]Id. at *5.

[40] Id.

[41] Id.

[42] Id.

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