On January 9, 2012, the Supreme Court heard oral argument in the case of Sackett v. United States Environmental Protection Agency. Although the facts of the case concern issues governed by the Clean Water Act (“CWA”), this case is important to all administrative law practitioners because of its potential to more clearly define the line between “final agency action,” which is generally subject to judicial review, and non-final agency actions which are not. Such a clarification will not only serve as a guide in future litigation against federal administrative agencies, but may also dramatically change how such agencies engage in “informal” communications with those subject to their jurisdiction. A copy of the oral argument transcript can be read here.
The Sacketts fight with the EPA centers on a small 0.63 acre property located near Priest Lake, Idaho and an EPA compliance order prohibiting its development. In May of 2007, the Sacketts began to fill in the property with dirt and rocks in preparation for construction of a three-bedroom home. However, in November of that year, the EPA issued a Compliance Order that ordered construction to be halted claiming that the Sacketts land was a wetland, was subject to EPA jurisdiction under the CWA, and that the construction could not continue without first obtaining a permit from the Army Corp of Engineers. The Compliance Order also required the Sacketts to remove all fill material, restore the property to its original condition, and replant the property with wetland vegetation no later than April 30, 2008. Additionally, the Compliance Order threatened civil penalties as high a $32,500 per day for each day the Sacketts did not comply with the Order. A copy of the EPAs news release announcing the issuance of the Compliance Order can be read here.
- What is a Compliance Order?
Under the CWA, after the EPA identifies a violation, the agency has three options: 1) the EPA may assess an administrative penalty, in response to which “the alleged violator is entitled to a reasonable opportunity to be heard and to present evidence, the public is entitled to comment, and any assessed penalty is subject to immediate judicial review;” 2) the agency can initiate a civil enforcement action in federal district court; or 3) the EPA can issue, as it did in this case, an administrative compliance order. See Sackett v. United States Environmental Protection Agency, 622 F.3d 1139, 1142 (9th Cir. 2010); see generally 33 U.S.C. § 1319. As explained by the Ninth Circuit, “a compliance order is a document served on [a] violator, setting forth the nature of the violation and specifying a time for compliance with the [CWA].” Sackett, 622 F.3d at 1142.
In order for a compliance order to be enforced, the agency must bring an enforcement action against the individual in federal court. However, pre-enforcement, the CWA does not give the alleged violator any right to a hearing in front of the agency to challenge its issuance, nor does it allow for the alleged violator to sue the agency in court. Instead, an alleged violators only way to challenge a compliance order is to do nothing, face potential mounting fines, wait for the EPA to sue for enforcement of the compliance order, and then argue the jurisdictional merits of the EPAs authority. It is this lack of a pre-enforcement challenge to EPAs authority which is at the heart of the Sacketts Supreme Court case.
- Final Agency Action and Review Under the Administrative Procedure Act
Section 10(c) of the Administrative Procedure Act (“APA”), codified at 5 U.S.C. § 704, provides that “final agency action for which there is no other adequate remedy in a court [is] subject to judicial review” under the APA. The APA applies to all final agency actions except to the extent that an enabling statute precludes review. See 5 U.S.C. § 701. However, the statute provides that the judicial review provisions of the APA may not be superseded by subsequent statutes unless such statutes expressly provide so. See 5 U.S.C. § 559. Additionally, the Supreme Court has found that there is a presumption favoring judicial review of administrative actions. Abbott Laboratories v. Gardner, 387 U.S. 136, 140 (1967) overruled on other grounds by Califano v. Sanders, 430 U.S. 99 (1977). However, this presumption is overcome “whenever the congressional intent to preclude judicial review is fairly discernible in the statutory scheme.” Block v. Cmty. Nutrition Inst., 467 U.S. 340, 351 (1984).
“The cases dealing with judicial review of administrative actions have interpreted the Ëœfinality element in a pragmatic way.” Abbott Laboratories, 387 U.S. at 149. As first announced in Abbott Laboratories, an agency action will be considered final and a pre-enforcement challenge will be allowed:
Where the legal issue presented is fit for judicial resolution, and where a regulation requires an immediate and significant change in the plaintiffs conduct of their affairs with serious penalties attached to noncompliance, access to the courts under the [APA] and the Declaratory Judgment Act must be permitted, absent a statutory bar or some other unusual circumstance. . . .
Abbott Laboratories, 387 U.S. at 153.
In Bennett v. Spear, 520 U.S. 154, 177-178 (1997), the Court articulated a two part test to determine whether an agency action qualifies as “final” and thus generally subject to judicial review under the APA. As stated by the Court:
As a general matter, two conditions must be satisfied for agency action to be “final”:
First, the action must mark the Ëœconsummation of the agencys decision-making process “ it must not be of a merely tentative or interlocutory nature.
And second, the action must be one by which Ëœrights or obligations have been determined, or from which Ëœlegal consequences will flow.
Bennett, 520 U.S. at 177-178 (emphasis added).
When assessing whether an agency action qualifies as “final,” the Court looks to numerous factors including: 1) whether the administrative order provides the definitive statement of the agencys position; 2) whether the administrative order has a “direct and immediate effect on the day-to-day business of the complaining parties;” 3) whether agency expects immediate compliance with the terms of the order such that the order has “the status of law;” 4) whether the suit challenging the agency action presents a “legal issue fit for judicial review;” and 5) whether the suit challenging the administrative order is calculated to speed enforcement.” See Brief of the American Farm Bureau Federation et al. as Amici Curiae Supporting Petitioners, Sackett v. Environmental Protection Agency, 14-15 (No. 10-1062) (2012) (quoting FTC v. Standard Oil Co. of California, 449 U.S. 232, 239 (1980)).
- The Case Below
In this case, in response to the compliance order issued by the EPA, the Sacketts sought an administrative hearing to challenge the EPAs findings that the property is subject to the CWA. However, this request was denied by the EPA. The Sacketts then filed their suit before the United States District Court for the District of Idaho seeking injunctive and declaratory relief arguing: 1) the compliance order was arbitrary and capricious under the APA, 5 U.S.C. § 706(2)(A); 2) the order violated the Sacketts due process rights because it was issued without a hearing; and 3) the standard for issuance of a compliance order under the CWA was unconstitutionally vague. Sackett, 622 F.3d at 1141.
Both the District Court and the Ninth Circuit dismissed the Sacketts pre-enforcement suit challenging the EPAs issuance of the compliance order for lack of subject-matter jurisdiction. In its opinion, the Ninth Circuit ruled that, based upon the structure and objectives of the statutory scheme as well as the legislative history of the CWA, the CWA precluded judicial review of pre-enforcement actions under the APA. Sackett, 622 F.3d at 1143-1147.
The Ninth Circuit additionally held that, although due process is violated when the “practical effect of coercive penalties for noncompliance is to foreclose all access to the courts so that compliance is sufficiently onerous and coercive penalties sufficiently potent that a constitutionally intolerable choice might be presented,” the statutory preclusion of pre-enforcement review of compliance orders does not rise to such a level for two reasons. First, the CWA provides for a permitting process, the denial of which is immediately reviewable in federal district court under the APA. The Ninth Circuit found that the jurisdiction issues raised by the Sacketts could be litigated in that forum. As such, “rather than completely foreclosing the Sacketts ability to . . . challenge CWA jurisdiction, the CWA channels judicial review through the affirmative permitting process.” Sackett, 622 F.3d at 1146. Second, the Ninth Circuit held that, although the violation of the CWA and of a issued compliance order may amount to [$37,500] each per day, the civil penalty is a matter of judicial, not agency, discretion. Thus, “any penalty ultimately assessed against the Sacketts would therefore reflect a discretionary, judicially determined penalty, taking into account a wide range of . . . equitable factors, and imposed only after the Sacketts have had a full and fair opportunity to present their case in a judicial forum.” Id. at 1147.
However, what is noticeably absent from the Ninth Circuits opinion is a discussion of the preliminary issue that has become a focal point of the briefs and oral argument before the Supreme Court: whether the compliance order is considered “final agency action” sufficient to trigger review under the APA.
- The Parties Positions Regarding Final Agency Action Before the Supreme Court
- The Merit Briefs
In accepting certiorari, the Supreme Court asked the parties to address two questions: 1) Whether the Sacketts may “seek pre-enforcement judicial review of the Administrative Compliance Order pursuant to the Administrative Procedure Act 5 U.S.C. § 704;” and 2) if not, does the Sacketts “inability to seek pre-enforcement judicial review of the Administrative Compliance Order violate their rights under the Due Process Clause?” See Brief for the Petitioners, Sackett v. United States Environmental Protection Agency, at i (No. 10-1062). In order to fully answer these questions, the issue of whether the Administrative Compliance Order constitutes “final agency action” is of critical importance.
In their Initial Brief, the Sacketts, most likely because the Ninth Circuit ignored the issue of whether the compliance order was a “final agency action,” only briefly outline their position as to why the EPAs compliance order qualifies as “final agency action.” First, the Sacketts argue that the compliance order “represents the consummation of the EPAs decision-making process” for three reasons: 1) “there are no further steps for the agency to take with respect to jurisdiction, or with respect to the orders issuance;” 2) “the order does not initiate any administrative process, nor is there any administrative process whereby the Sacketts can seek review of the order;” and 3) the CWA provides that the compliance order is immediately enforceable in court by the agency. See Brief for the Petitioners, at 55. Second, the Sacketts argue that the compliance order satisfies the second step of the Bennett test because failure to comply with the compliance order itself is both actionable and punishable by civil penalties. Thus, according to the Sacketts, independent “legal consequences flow from the compliance order.” Id.
In response, the Government dedicated several pages of its brief to counter the Sacketts claims that the compliance order is a “final agency action” subject to judicial review and argued that the compliance order fails both prongs of the Bennett test. First, the Government argued that the compliance order fails step one of Bennett because it does not mark the consummation of the agencys decision-making process. According to the Government, the order invited the Sacketts to contact the EPA informally regarding the terms and requirements of the order itself as well as any factual allegations that the Sacketts believed to be false. Additionally, the compliance order invited the Sacketts to propose alternatives to the remediation plan proposed. Thus, “because EPA indicated that allegations and conclusions underlying the order were subject to revision based on petitioners might provide, and that the prescribed corrective measures were subject to negotiation, the compliance order cannot properly be viewed as representing the agencys final conclusions.” Brief for the Respondent, Sackett v. United States Environmental Protection Agency, 24-25 (No. 10-1062).
The Government also argued that the compliance order failed step two of Bennett because compliance orders merely “express the agencys views of what the law requires” and any factual determinations made within the compliance order would be given no deference by a court in an enforcement action. Brief for the Respondent, at 28. The Government also argued that any potential legal consequences faced by the issuance of a compliance order are not “sufficiently concrete or substantial to render the order Ëœfinal agency action.” Id. at 29. Here, the Governments argument mirrors the Ninth Circuits logic that because the penalties associated with the failure to comply are subject to judicial, not agency discretion, and because an after-the-fact permit process exists which provides for judicial review wherein a potential violator can challenge EPA jurisdiction, the legal consequences are not such that pre-enforcement review is essential. Id. at 29-31.
The Sacketts countered the Governments arguments in their Reply Brief arguing that Bennett is satisfied for several reasons. First, the language of the CWA itself only permits a compliance order to be issued after the EPA has made findings that the CWA has been violated. Reply Brief for the Petitioners, Sackett v. United States Environmental Protection Agency, 13 (No. 10-1062). Further, the CWA “makes clear that the issuance of the compliance order is one of two equal enforcement options that EPA may take once it Ëœfinds that the statute has been violated.” Id. at 16 (emphasis in original). Thus, “the compliance order is not a prelude to enforcement[,] [r]ather, the compliance order is enforcement.” Id. (emphasis in original). Next, the Sacketts cited numerous circuit court decisions which have found that agency actions can be deemed “final” even though the actions themselves provide for informal consultation between the agency and an effected party. Id. at 15-16. Finally, the Sacketts argued that because the compliance order subjects them to additional penalties for non-compliance and creates additional requirements that must be satisfied before obtaining an after-the-fact permit, the compliance order creates additional legal obligations sufficient to be considered final.
- The Governments Policy Rationale for Arguing that Compliance Orders are Non-Final Agency Action and Thus Not Entitled to the Presumption of Reviewability
In addition to arguing in its brief that the compliance order failed to meet the Bennett test, the Government also presented several policy-based arguments as to why compliance orders should not be viewed as “final agency actions.”
The Government argues that compliance orders: 1) inform parties regulated by the administrative agency of requirements imposed by law, and 2) warn parties that the failure to comply with such laws may result in future enforcement actions. See Brief of Respondents, at 14. Contrary to the claims of the Sacketts, the Governments position is that no additional obligations are imposed on parties issued compliance orders. Rather, such orders “set forth the EPAs views as to the steps particular persons must take to achieve prospective compliance with the CWA itself.” Id. at 17.
Additionally, the Government argues that compliance orders, as well as similar devices used by other agencies, serve an important purpose of “obviate[ing] the need for judicial intervention, either by inducing voluntary implementation of the measures specified therein, or by triggering a process of consultation between the agency and the alleged violator that produces a mutually acceptable alternative resolution.” Id. at 13. The Government further argues that communications such as compliance orders or warning letters provide a benefit similar to that found in settings where administrative exhaustion is required because agencies are given the “opportunity to correct their own mistakes and to refine their views without the need for judicial intervention.” Id. at 22.
The Governments position is that compliance orders are neither entitled to pre-enforcement review nor unlawful merely because they present the “Hobsons choice” of complying with an agency with questionable jurisdiction demands or do nothing and wait to challenge the agencys jurisdiction in an agency brought enforcement order the face of mounting penalties. Id. at 22. Instead, the Government argues that “from the regulated partys perspective, such communications give recipients an opportunity to conform their conduct to the agencies guidance before being subjected to an enforcement action.” Id.
Given the broad purposes of environmental regulation in general and the CWA in particular, compliance orders allow the agency to achieve a quicker resolution to situations of ongoing environmental damages. The Government believes that if pre-enforcement judicial review is allowed for these communications their effectiveness at achieving voluntary compliance would be substantially weakened and resources of the administrative agency would be drained in litigating cases of minor offenders. Thus, by preventing pre-enforcement judicial review and by allowing agencies to “interact with regulated entities outside of more formal administrative-adjudication or judicial-enforcement settings, agencies can conserve resources and prioritize their enforcement efforts to respond to the most sever violations.” Id. at 22.
- The Courts Questioning of the Governments Position at Oral Argument
At oral argument, the Justices focused on whether, based on Abbott Laboratories and the presumption of reviewability, challenges to the jurisdiction of an agency issuance of a compliance order require pre-enforcement review. In their questioning, the Justices appeared to clearly distinguish between warning letters, which have long been considered non-final agency action and not entitled to judicial review, and the compliance orders issued by the EPA. In particular, the Justices appeared interested in the language of the compliance order itself and the back and forth between the agency and the alleged violator before and after the issuance of a compliance order. Additionally, the Justices focused on the “Hobsons choice” of either voluntarily complying with an order that the issuing agency may not have the jurisdiction to issue or to not comply, face mounting fines, and wait to assert a jurisdictional challenge at some undetermined time as the agency so chooses to bring an enforcement action. Transcript of Oral Argument, at 42-53, Sackett v. Environmental Protection Agency, (No. 10-1062).
During oral argument, Justice Breyers main concern as to whether the compliance order could be considered non-final turned on the language in the order suggesting that alleged violators should contact the EPA in informal discussions regarding the terms and requirements of the order itself as well as any factual allegations that the Sacketts believed to be false. In particular, Justice Breyer appeared concerned with whether such post-issuance communications actually result in the agency changing its position:
Justice Breyer: Is there anything youve got by “ I mean, Im “ Youve got me now into the area, we are applying the APA and the question is Abbott Labs and is it final. Well, here there doesnt seem anything more for the agency to do, and here the person who the order is directed against is being hurt a lot. So the only thing I “ left in my mind here is the order itself does say: Come in and talk to us about this. Which may suggest it isnt final. So do you have any information on that point? That is, have you looked up or has the APA told you that really when we issue these things, people come in and modify them at X percent of the time.
Id. at 45 ln. 9-21. In response the Government argued that although only 3 percent of all compliance orders ever lead to enforcement actions being taken, the Government did not have any statistics as to whether this was because of informal communications between the alleged violator and the agency or whether it was merely because alleged violators have chosen to voluntarily comply. Id. at 46.
However, when pressed by Justice Kagan as to whether post-issuance communications normally result in modifications, the Government conceded that it was unlikely:
Justice Kagan: Mr. Stewart, you suggested that, that some communication occurs before this compliance order [is issued]. And my guess would be that most of the back and forth between the agency and the person does happen before the compliance order rather than after.
And the notion that the person can come in after the compliance order and say you were wrong, well they can, but they can do that with respect to any administrative action. So, am I wrong about that? That really the back and forth here takes place before the compliance order issues rather than after?
Mr. Stewart: I think you are right as a matter of typical agency practice that there would be an invitation well before the compliance order was issued to come in and give your side of the story, and you are probably right that if we got to the point where a compliance order was issued, then the likelihood that further communications would sway the agency substantially might be reduced. So I would take your point there “
Id. at 46 ln 15-25 “ 47 ln. 1-10.
Of particular note was the exchange between Justice Scalia and the Government regarding the jurisdictional challenges to compliance orders. During the Governments argument Justice Scalia posed the question of whether a person can “usually obtain a declaratory judgment if prosecution is threatened and you think that there is no basis for it, and you cant “ you are not “ youre not compelled to just stand there and wait for the prosecutor to, to drop the hammer?” Id. at 48. In response, the Government argued that, although declaratory judgment actions are available in such situations, because the Governments position is that compliance orders are “informal warnings,” extending a right to a declaratory judgment to compliance orders “would cause a huge upheaval in the practices of many agencies. . . .” Id. at 49.
However, the Justices appeared to reject this rationale and further pressed the issue of whether a compliance order should be considered “final agency action” with Justice Breyer commenting: “You are talking about a huge upheaval. My honest impression is that it is the Government here that is fighting 75 years of practice because “ because the issue is the Abbott Labs issue of finality. And of course a warning isnt reviewable. But this seems to meet the test where that fails.” Id. at 49 ln. 19-23.
- Analysis and Conclusion
Based upon the totality of information before the Court, the arguments made by the Sacketts that compliance orders are “final agency action” entitled to pre-enforcement review appears to be strong. The Court pressed the Government on the issue of whether post-issuance discussions between alleged violators and the agency actually effect a change of the agencys position. Additionally, the Government conceded in both its brief and at oral argument that the failure of alleged violators of the CWA to follow the remediation plan outlined in a compliance order potentially subjects the violator to additional penalties above and beyond the penalties for violating the CWA itself.
Moreover, it appears that the Governments strongest argument that compliance orders are not entitled to pre-enforcement review is the “huge upheaval” such a ruling would level on the day-to-day operations of administrative agencies. As explained above, the Government has argued that a decision which classifies compliance orders as “final” could result in increased litigation and decreased voluntary compliance with the result being a more litigious and less effective administrative state.
However, even if the Court does agree with the Sacketts and finds that compliance order are in fact “final” thus entitling recipients to pre-enforcement judicial review, the practical consequences will not likely be as harsh as the Government fears. First, the Court in oral argument appears to have reaffirmed that less formal communications such as warning letters are properly considered non-final agency action to which no pre-enforcement review is required. Other agencies successfully use warning letters to achieve the same goals of voluntary compliance and administrative efficiency. Additionally, despite the actual and incidental consequences which commonly plague recipients who must defend themselves against such letters, the Court consistently denies pre-enforcement review for such agency actions. Furthermore, the Sacketts have not challenged any such less formal actions.
Additionally, the CWA provides for other forms of enforcement for violations, such as a civil enforcement action without the issuance of a compliance order. Thus, should the Supreme Court find that compliance orders are “final,” the most likely “upheaval” would be the seismic shift towards the increased use by agencies of warning letters followed by civil enforcement actions in cases of noncompliance.
Moreover, as explained above, judicial review of a “final agency action” pursuant to the APA can always be expressly superseded by an agencys enabling statute. As such, should the Supreme Court decide favorably for the Sacketts, and mark a trend towards easier access to judicial review of agency actions, there is no reason to think that federal administrative agencies would not lobby Congress for statutory reforms to expressly preclude judicial review of compliance orders.
The debate as to what exactly is “final agency action” has been ongoing for decades. However, until such a time that the Court is willing to take a more concrete and expansive view of what qualifies under Abbott Laboratories and Bennett as “final agency action,” particularly a view based on the real life and practical consequences of the issuance of warning letters, administrative law practitioners, and their clients, will continue to be faced with a Hobsons choice and uncertainty when responding to such non-final actions. In the end, the Courts ultimate decision as to whether a compliance order is considered “final agency action” which entitles recipients to pre-enforcement judicial review may be more of a moral victory for administrative law attorneys and less of a game-changer in litigation against federal agencies.