To close out 2015, the Pennsylvania Supreme Court issued several opinions last week, including one that may potentially impact how parties challenge penalties assessed by the Pennsylvania Department of Environmental Protection (“DEP”) for violation of state environmental laws.  The case, EQT Production Co. v. Dept. of Envt’l Prot., No. J-67-2015 (Dec. 29, 2015), involves a challenge by EQT, a natural gas fracking operator, to civil penalties levied by DEP for contamination caused by a leaking fracking water impoundment.  EQT had already commenced a formal cleanup under Pennsylvania’s “Act 2” voluntary remediation program when DEP issued a civil penalty settlement demand under Pennsylvania’s Clean Streams Law for over $1.27 million, $900,000 of which was tied to ongoing violations.  DEP took the position that each day the contamination remained in the soil and/or entered groundwater or surface water constituted a continuing violation subject to additional penalties.  EQT disagreed and argued that under the Clean Streams Law, penalties could not exceed those that accrued during the time that contamination was actually being discharged into the environment.  The operator also argued that the Act 2 program governed their remediation efforts to address the contamination that remained at the site.  

EQT filed an appeal directly to the Pennsylvania Commonwealth Court seeking a declaratory judgment to determine whether DEP’s policy on “continuing-violation” penalties was allowable under the Clean Streams Law, claiming that it lacked a viable administrative remedy to challenge the penalty assessment.  A few weeks later, DEP filed a complaint for civil penalties with the Pennsylvania Environmental Hearing Board (“EHB”), the state’s independent quasi-judicial agency with original jurisdiction over appeals of final actions by DEP.  In the EHB action, DEP sought over $4.5 million in penalties, plus an additional $10,000 per day for the continued presence of contamination at the site.  DEP further contended that the Commonwealth Court lacked jurisdiction to hear EQT’s challenge to the penalty assessment, and that the EHB was the sole forum for the operator’s appeal. 

The Commonwealth Court agreed with DEP and dismissed EQT’s appeal on the basis that the EHB had exclusive authority to determine appropriate penalties under the Clean Streams Law.  The Commonwealth Court also held that EQT failed to meet one of the prerequisites for a declaratory judgment action – that an actual controversy existed that would threaten EQT’s legal rights.  The Commonwealth Court held that since DEP “merely expresses legal opinions when it makes penalty recommendations,” but that the EHB actually decides and imposes the ultimate penalty, EQT’s alleged harm was purely speculative.

EQT appealed the Commonwealth Court’s decision to the Pennsylvania Supreme Court, arguing that it faced a real and direct threat from DEP’s proposed penalties, and that it was asking the court to determine a discrete legal question – i.e. whether the presence of contaminants at a site following a known release constitutes a separate “discharge” under the Clean Streams Law so as to allow DEP to impose separate daily accruing penalties.

The Pennsylvania Supreme Court agreed with EQT and overturned the Commonwealth Court’s ruling, and specifically held that the case presented “a sufficient, actual controversy” which fell “within the class of disputes that are a proper subject of pre-enforcement judicial review.”   Directing that EQT “will be permitted to pursue its substantial challenge to the [DEP’s] continuing-violation interpretation in Commonwealth Court, given the company’s potential exposure to potent, ongoing civil penalties,” the court further noted that “the uncertainties facing [EQT] while under the threat of ballooning penalties under DEP’s ongoing-violation interpretation is sufficient, in our view, to confirm the entitlement to judicial review.” 

In response to DEP’s arguments that the EHB had exclusive jurisdiction over EQT’s challenge to the civil penalty assessment, the court pointed to the reasoning of a recent United States Supreme Court decision, Sakckett v. EPA, 132 S. Ct. 1367 (2012), which we previously reported on, where the United States Supreme Court held that, even in the absence of an enforcement action, the federal courts had jurisdiction to determine whether the EPA had correctly asserted jurisdiction over certain lands under the Clean Water Act, which resulted in assessment of daily penalties against the landowner who the EPA contended had improperly filled a protected wetland.

In an interesting footnote, the Pennsylvania Supreme Court stated that the case might have been decided differently if DEP had filed their EHB action before EQT had initiated the declaratory judgment action before the Commonwealth Court.  While it reserved judgment on that issue, the court warned that “we would be hesitant to foster races to the respective judicial and quasi-judicial tribunals.”

The case has been remanded to the Commonwealth Court for further proceedings.  Pennsylvania’s regulated community will have its eye on the outcome of the Commonwealth Court action, and the court’s interpretation of DEP’s policy on continuing-violation penalties.