By Andrew H. Perellis and Ilana R. Morady

On March 21, 2012, the United States Supreme Court issued a unanimous decision hugely impacting EPA’s enforcement authority under the Clean Water Act (CWA). The decision also has strong implications for EPA’s enforcement authority under the Clean Air Act (CAA).

The issue before the Court was whether two landowners could bring a civil action under the Administrative Procedure Act (APA) to challenge EPA’s issuance an administrative compliance order (ACO). ACOs are a principal civil enforcement tool used by EPA, and they require parties to undertake response action when EPA believes a violation of the CWA has occurred. Michael and Chantell Sackett, owners of an undeveloped parcel of land in Idaho, filled a portion of their land in 2007 in preparation for building their home. The EPA, however, determined that the Sacketts had violated the CWA because their parcel contained a wetland. Under the CWA, a permit is required for filling a wetland. EPA issued an ACO to the Sacketts under Section 309 of the CWA, 33 U.S.C. § 1319, directing them to restore their land to its original condition and remove the fill material.

The Sacketts petitioned EPA for a hearing to challenge the agency’s determination that their parcel contained a wetland, but the agency refused, claiming that the Order was not subject to judicial review until and unless EPA sought to enforce the Order in court. EPA vigorously defended its position all the way to the U.S. Supreme Court, but none of the Justices bought EPA’s argument. The Court held that the ACO at issue was final agency action subject to APA review. Justice Scalia delivered the Court’s opinion, stating that “[t]here is no reason to think that the Clean Water Act was uniquely designed to enable the strong-arming of regulated parties into ‘voluntary compliance’ without the opportunity for judicial review — even judicial review of the question whether the regulated party is within the EPA’s jurisdiction.”

Section 704 of the APA, 5 U.S.C. § 704,  provides for judicial review of “final agency action for which there is no other adequate remedy in a court.” On the issue of whether the ACO was final agency action, the Court said “it ha[d] all of the hallmarks of APA finality….” During oral argument and in its brief, the Government asserted that the ACO was not final agency action because the Order invited the Sacketts to “engage in informal discussions of the terms and requirements” of the Order and to inform EPA of “any allegations [t]herein which [they] believe[d] to be inaccurate.” The Court, on the other hand, noted that “the mere possibility” that EPA might change its mind did not serve to make “an otherwise final agency action nonfinal.”

On the issue of whether the Sacketts had another route to judicial review, the Court rejected EPA’s contention that applying to the U.S. Army Corp of Engineers for a permit, and then filing suit under the APA if the permit was denied, was an adequate remedy. But, the crux of EPA’s argument before the Court was not that other available remedies barred APA review. Rather, EPA relied heavily on the notion that the CWA precluded judicial review of the ACO.

Under Section 701 of the APA, 5 U.S.C. § 704, judicial review is unavailable “to the extent that [other] statutes preclude [it].” Although the CWA does not expressly preclude judicial review, the Government posited that because the CWA authorizes EPA to either file a civil action or issue an ACO when it determines that a regulated entity is in violation of the CWA, Congress intended the agency to have an enforcement option that obviates the need for judicial intervention. Pre-enforcement judicial review, EPA argued, would eliminate that choice. The Court, however, said that “[t]here are eminently sound reasons other than insulation from judicial review why compliance orders are useful,” for example providing a means of speedily resolving issues through voluntary compliance if the recipient so desires.

In arguing its position, the Government exhorted that EPA would be less likely to use ACOs if they were subject to judicial review. Now that the regulated community can seek pre-enforcement judicial review of ACOs issued under the CWA, it remains to be seen how EPA’s enforcement tactics will change. It also remains to be seen how EPA will use ACOs under other environmental statutes, particularly under the CAA. The CAA’s language addressing ACOs, at 42 U.S.C. § 7603, is virtually identical to Section 309 of the CWA. In any event, yesterday’s decision is surely a landmark, and a big win for the regulated community.