On June 6, the U.S. Supreme Court decided not to consider a constitutional challenge brought by the General Electric Company (“GE”) against an enforcement mechanism frequently used by the United States Environmental Protection Agency (“EPA”) to compel potentially responsible parties (“PRPs”–see discussion below) to clean up contaminated sites under the Federal Superfund law.  The Supreme Court’s refusal to hear the case, known as a denial of certiorari, lets stand a decision of the U.S. Court of Appeals for the District of Columbia Circuit in favor of EPA in the case of General Electric Co. v. Jackson, 610 F.3d 110 (D.C. Cir., June 29, 2010).  GE had claimed that the particular enforcement mechanism, known as a Unilateral Administrative Order (“UAO”) represented a violation of the constitutional right to due process.  The Supreme Court’s action would appear to preclude further due process challenges to EPA’s use of the UAO.

Federal Superfund sites are sites that EPA has determined to be among the most severely contaminated sites in the country.  PRPs are parties that have liability for the cost of cleanup at a particular site.  Under the Superfund statute, PRPs include:  1) current and past owners and operators of the site; 2) parties that transported hazardous substances to the site for disposal; and, 3) parties that “arranged for disposal” of hazardous substances at the site.  Parties that are subject to “arranger liability” typically include companies that generated hazardous waste through manufacturing operations, and arranged for that waste to be brought to an off-site facility for disposal.  Those off-site facilities have occasionally been declared Superfund sites by EPA, years after disposal occurred and after the facilities have ceased operation.  Liability under Superfund is strict, joint and several, meaning that it is imposed without regard to fault and that any of the PRPs can be held responsible for the entire cost of cleanup.

Once EPA determines that cleanup is necessary at a Superfund site, there are four options that EPA can pursue to achieve cleanup.  First, it can negotiate a settlement with any or all of the PRPs.  Alternatively, EPA can perform the cleanup using Federal funds and then sue any or all of the PRPs to recover its cost.  A third option is to bring an action in Federal District Court to compel any or all of the PRPs to carry out the cleanup.  Finally, EPA can issue a UAO.

If EPA issues a UAO, the recipient has the option to conduct cleanup under EPA oversight and with formal EPA approval.  The PRP also retains the right to sue EPA for reimbursement of cleanup costs, if it can prove, in a subsequent court proceeding, that it does not have statutory liability under the Superfund law (and therefore is not actually a PRP).  Finally, the PRP can refuse to comply with the UAO.  In that case, EPA will conduct the cleanup and has the right to sue the PRP in Federal District Court to recover its costs.  More importantly, EPA can also claim in that court proceeding that the PRP’s refusal to comply constitutes a violation of the UAO.  If the court finds that the PRP failed to comply with the UAO “without sufficient cause” it can impose penalties of up to $37,500 per day of violation and order the PRP to pay EPA three times the cost of cleanup (treble damages).

GE, which has received more than sixty-five UAOs over the years, brought suit in U.S. District Court for the District of Columbia in 2009.  GE claimed that the lack of a right to a hearing to either deny liability or to challenge whether the remediation methodology selected by EPA was consistent with the Superfund law or its regulations until after EPA had already conducted the remediation and was suing to recover its costs, represented a violation of the constitutional right of due process.  GE contended that the procedure deprived PRP’s, such as GE, of a meaningful right to be heard on these substantive issues.  The District Court ruled against GE, and GE appealed the decision to the D.C.  Circuit.  GE was joined in the appeal by the U.S. Chamber of Commerce, which filed a friend of the court brief in support of GE’s position.

In its brief to the D.C. Circuit, EPA argued that the statute gives PRPs sufficient due process rights by providing review by a court (judicial review) before the PRP is actually deprived of any property.  EPA stated that, by refusing to comply with a UAO, a PRP can force EPA to file suit in federal court, where the PRP can challenge the UAO’s validity before spending a single dollar on cleanup costs, damages or fines.  GE responded that non-compliance is only a theoretical option.  According to GE, the prospect of daily fines and treble damages is so intimidating that it effectively prevents PRPs from exercising the non-compliance option.  Therefore, PRPs are realistically forced to comply and spend substantial sums prior to any hearing before a neutral decisionmaker.

As previously noted, the Circuit Court ruled in favor of EPA.  The Court stated that it understood GE’s concern that the financial consequences of UAOs can be substantial.  The Court also agreed that an alternative administrative enforcement scheme might provide “greater process” than the UAO.  But the Court noted that its function was to determine whether the enforcement scheme provided by the UAO provided sufficient process.  The Court ruled that it did, since a PRP such as GE is not required to incur any actual expenditures until after it has had an opportunity to be heard in a Federal Court.  The Court also noted that several other Circuit Courts of Appeals had ruled that UAOs do not violate due process.

With the Supreme Court’s denial of certiorari, the issue appears to be settled.

While the D.C. Circuit is correct that the PRP does not actually have to spend money on cleanup costs, fines or damages until after it has had its day in court, as a practical matter the dilemma faced by a PRP that receives a UAO is very difficult.  Even if the PRP believes that it has a valid defense to liability, the risk of penalties and treble damages is very severe, and that risk may very well outweigh the degree of comfort the PRP may have with its arguments against the underlying statutory liability.  For now, the courts have decided that, as daunting as this dilemma may be, it does not rise to the level of a violation of due process rights.