United States: New Worries For Section 404 Permit Recipients: D.C. Circuit Rules That EPA May Retroactively "Veto" Permits Already Granted By The Army Corps

On April 23, 2013, the D.C. Circuit ruled that the Environmental Protection Agency (EPA) has the power under the Clean Water Act (CWA) to retroactively veto a section 404 dredge and fill permit "whenever" it makes a determination about certain adverse effects, even years after the U.S. Army Corps of Engineers (Corps) has granted the permit to an applicant. See Mingo Logan Coal Company v. EPA, No. 12-5150 (D.C. Cir. Apr. 23, 2013).

Section 404 Permit Background
The CWA prohibits unpermitted "discharges" of dredge or fill material into the navigable waters of the United States. The statute's definition of "navigable waters" has been interpreted very broadly, and generally prohibits anyone from filling in wetlands subject to federal jurisdiction without first obtaining a "404 permit" from the Corps. For example, a developer that wishes to build on a site that includes areas designated as jurisdictional wetlands, must first obtain a permit under section 404 of the CWA to fill those wetlands with dirt or other material. The penalties for violating this provision are high: up to $37,500 a day in civil penalties for unauthorized discharges, which doubles to up to $75,000 per day if a person fails to comply with an EPA compliance order.

Although the CWA empowers the Corps to grant 404 permits, subsection 404(c) authorizes EPA to "prohibit the specification (including the withdrawal of specification) of any defined area as a disposal site, and . . . to deny or restrict the use of any defined area for specification (including the withdrawal of specification) as a disposal site whenever [it] determines" that the discharge will have an "unacceptable adverse effect" on identified environmental resources. This power has become known as the 404(c) "veto" authority, as it operates to prevent the Corps from issuing a permit to fill within certain areas prohibited by EPA. Until this case, EPA has used the veto authority sparingly, vetoing only a handful of permits in the past 40 years. When EPA has exercised this power, it has almost always done so before the Corps actually issued a permit.

District Court Litigation
In 2007, the Corps granted a 404 permit allowing discharge from Mingo Logan's mining activities into three streams and tributaries in West Virginia for the following 25 years. At the time, EPA expressed some concerns, but declined to exercise its 404(c) powers to prohibit the specification of disposal sites. Four years later, EPA issued a final determination purporting to prohibit or withdraw the specification of two of the three streams as disposal sites. EPA's actions effectively revoked those aspects of the permit. In response, Mingo Logan filed suit in the federal District Court in the District of Columbia. The company argued that EPA lacks statutory authority to withdraw site specification after a permit has issued, and that EPA's decision to do so was arbitrary and capricious and in violation of the Administrative Procedure Act (APA). The district court granted summary judgment to Mingo Logan on the first ground without reaching the APA claim. The district court characterized EPA's assertion of authority to withdraw the specification of certain areas as disposal sites from the permit at any time, without limitation, "a stunning power for an agency to arrogate to itself when there is absolutely no mention of it in the statute," and concluded that it was "unreasonable to sow a lack of certainty into a system that was expressly intended to provide finality." EPA appealed, and the D.C. Circuit reversed. 

D.C. Circuit Decision
Writing for a unanimous panel, Judge Henderson explained that while Congress delegated the authority to issue 404 permits to the Corps, Congress unambiguously "granted EPA a broad environmental 'backstop' authority over the [Corp's] discharge site selection in subsection 404(c)." Contrary to Mingo Logan's textual and historical arguments why "Congress intended EPA to act under section 404(c), if at all, prior to permit issuance," the D.C. Circuit found no temporal limitation on EPA's power. Instead, the panel concluded that the CWA expressly empowers the EPA Administrator "to prohibit, restrict or withdraw the specification 'whenever' he makes a determination that the statutory 'unacceptable adverse effect' will result." Judge Henderson's opinion held that "the unambiguous language of subsection 404(c) manifests the Congress's intent to confer on EPA a broad veto power extending beyond the permit issuance" — such that EPA "has, in effect, the final say on the specified disposal sites 'whenever' [it] makes the statutorily required [finding]." This was so, the panel concluded, despite statutory provisions affording permit holders "certainty and finality," such as the so-called "permit shield" protecting activities conducted in compliance with a permit. An EPA Federal Register notice withdrawing a site specification, the panel explained, "in effect amend[s]" a permit issued by the Corps, such that discharges at previously-specified sites are no longer in "[c]ompliance with" the permit. The panel remanded the case to the district court to determine whether EPA's decision to limit the site specifications in Mingo Logan's permit was arbitrary and capricious under the APA.

Implications of the Decision
The Court's decision creates serious uncertainties for all section 404 permittees, their lenders, and others in business with them. At a minimum, permit holders must now monitor subsequent withdrawals or prohibitions by EPA, which can effectively "amend" their permits. While the specific facts of this case relate to ongoing fill activities, the broadly written language of the decision could have sweeping implications in other areas. Particularly troubling is the question of whether EPA may now require permittees who have permanently filled in wetlands to face penalties and the possible removal of the fill material. Private parties who have previously engaged in filling activities — which may include building on the site — now have no way of knowing if EPA may suddenly decide to alter the conditions of their permit years, or even decades, in the future. Following the decision, a permittee's only recourse may be to challenge EPA's determination to withdraw or prohibit the site specification under general (and often deferential) administrative law principles. Project opponents may also see the opinion as a new avenue to challenge permits by arguing that EPA has acted in an arbitrary and capricious manner whenever it fails to exercise the 404(c) veto. Finally, because the court held that the statute unambiguously vests EPA with indefinite withdrawal authority under "Step 1" of the traditional Chevron analysis, the opinion may preclude a future EPA administration from interpreting its statutory authority more narrowly, as limited to pre-permit withdrawals or specifications.

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