In Service Oil, Inc. v. United States Environmental Protection Agency, the 8th U.S. Circuit Court of Appeals held that the Clean Water Act (CWA) does not authorize administrative penalties based on the failure to obtain a stormwater discharge permit before starting construction of a new facility. In proceedings below, EPA sought and was awarded administrative enforcement penalties under CWA section 1319(g). The Service Oil court clarified that section 1319(g) authorizes penalties only for violations of the Act's "core prohibition against discharging without a permit, or contrary to the terms of a permit." Following the 2nd Circuit's reasoning in Waterkeeper Alliance, Inc. v. E.P.A., the court held that "unless there is a "discharge of any pollutant there is no violation of the Act, and point sources are, accordingly, neither statutorily obligated to comply with EPA regulations for point source discharges, nor are they statutorily obligated to seek or obtain an NPDES permit."
Although EPA can require point sources to apply for an NPDES permit prior to construction, the court explained, the failure to apply in that time period may lead to other forms of enforcement but cannot support an action for administrative penalties absent an actual unpermitted discharge. Thus, the court provided balanced relief, simultaneously supporting EPA's system of pre-construction permit applications while limiting the scope of the agency's enforcement authority to seek monetary penalties. The implications of the holding are significant for parties wrangling with EPA over what are often substantial administrative penalties EPA seeks for regulatory violations without an actual discharge. In Service Oil, for example, the administrative law judge assessing the penalty attributed nearly $27,000 of the overall $35,600 penalty to the defendant's "complete failure" to apply for and obtain an NPDES permit prior to construction. The 8th Circuit's holding reversed the basis for this portion of the penalty, remanding for further proceedings to re-calculate an appropriate (and much reduced) penalty.