On April 11, the US Court of Appeals for the District of Columbia Circuit heard oral argument in the case involving EPA’s revocation of Mingo Logan Coal Company’s Clean Water Act (CWA) permit for the Spruce 1 Mine in West Virginia. As noted in our last update, the case involves EPA’s authority to retroactively nullify a permit several years after it was issued. The DC Circuit previously held that EPA has statutory authority under CWA § 404(c) to withdraw permit specifications allowing discharges of fill materials years after the permit has been issued. Mingo Logan Coal Co. v. EPA, 714 F.3d 608 (D.C. Cir. 2013). The Supreme Court denied certiorari on that issue. The remaining issue is whether EPA’s revocation of Mingo Logan’s permit was arbitrary and capricious in violation of the Administrative Procedure Act (APA). The district court upheld EPA’s decision to revoke the permit in September 2014.

The oral argument centered on what standard EPA should be held to in invoking its post-permit veto authority under § 404(c) of the CWA. The panel included Judges Henderson (nominated by George H.W. Bush), Kavanaugh (nominated by George W. Bush) and Srinivasan (nominated by Barack Obama), but Judge Henderson was not present for the argument and instead will decide based on the transcript and record.

Mingo Logan’s attorney, Paul D. Clement, argued that when EPA exercises its 404(c) authority post-permit it should be held to a higher standard than when invoking its authority pre-permit. Mr. Clement argued that EPA should be required to take into account certain factors, such as the permit-holder’s reliance interest, history of compliance with permit conditions, costs to the company and lost jobs. He also argued that EPA must provide a justification for reversing course to revoke the permit based on substantial new information that has arisen since the permit was originally issued. He further argued that EPA should have addressed why the US Army Corps of Engineers and West Virginia approvals were no longer valid.

Judge Kavanaugh appeared receptive to Mingo Logan’s argument that given the reliance interests inherent in post-permit revocation, EPA must present substantial new information to justify its post hoc departure from the conclusions reached in the pre-permit process. He also suggested that EPA may have an obligation to consider non-environmental factors, such as the cost to the permit-holder, as an important aspect of the problem that should be evaluated in reasoned agency decision-making consistent with the APA.

Judge Srinivasan suggested that Mingo Logan had waived its argument that EPA failed to take into account its reliance interest in the permit because Mingo Logan did not proffer that argument before the agency in its comments submitted during the revocation process. He suggested that the record before the agency did not include any evidence of Mingo Logan’s reliance interest in the permit and therefore the reliance argument was not properly preserved for the court.

DOJ attorney Matthew Littleton argued that EPA has broad discretion to veto a permit under CWA Section 404(c) whenever it finds that the permit activities would have an unacceptable adverse effect on aquatic resources. While Mingo Logan argued that the term “unacceptable” is broad enough to encompass consideration of non-environmental factors such as costs, EPA claimed the plain language of the CWA limits EPA’s analysis of unacceptable effects to aquatic resources. Section 404(c) states that EPA can invoke its authority if it finds an “unacceptable adverse effect on municipal water supplies, shellfish beds and fishery areas (including spawning and breeding areas), wildlife, or recreational areas.” EPA argued that under § 404(c), it has discretion to take into account non-environmental factors, but is not required to do so as a precondition to invoking its post-permit veto authority. Judge Kavanaugh noted that the term “unacceptable” was capacious and that it may require the agency to consider the full universe of facts and circumstances surrounding its action, including costs, jobs, and other economic impacts. He referenced Michigan v. EPA, 576 U.S. ___ (2015), where the Supreme Court held that EPA must consider costs under the Clean Air Act when regulating power plant emissions. Thus, the Mingo decision could be an important follow-on to last-year’s Michigan decision.