Oil and Gas Update

PA Supreme Court Rejects PADEP's Theory of Limitless Civil Penalties for "Continuing Violation" of Clean Streams Law

April 25, 2018

We have previously written about a declaratory judgment action filed by a natural gas producer against the Pennsylvania Department of Environmental Protection (“PADEP”) challenging the agency’s interpretation of Pennsylvania’s Clean Streams Law. In that proceeding, the gas producer sought pre-enforcement judicial review of PADEP’s legal interpretation of what constitutes a “continuing violation” of the Clean Streams Law for purposes of civil penalty assessment. After a protracted dispute over whether the gas producer could even pursue the declaratory judgment action, the Supreme Court of Pennsylvania recently rejected PADEP’s theory that even after an initial release of pollutants is corrected at the source, it can assess penalties of up to $10,000 per day for each day that contaminants remain present and continue to migrate from one water (or part thereof) into another water (or part thereof).

As we previously explained, in 2012, EQT Production Company (“EQT”) discovered leaks from an impoundment used to hold flowback from wells used for hydraulic fracturing. The production company subsequently began voluntary remediation of the site, removing contaminated water and sludge and commencing a formal cleanup process pursuant to Pennsylvania’s Land Recycling and Environmental Remediation Standards Act, known as Act 2.

In 2014, PADEP issued a proposed civil penalty assessment, seeking $1.3 million in civil penalties, $900,000 of which were assessed for the producer’s alleged “continuing violation” of the Clean Streams Law. PADEP took the position that even though the impoundment had stopped leaking, it was authorized to assess civil penalties of up to $10,000 for each day that contaminants remained in the subsurface soil and passively entered groundwater and/or surface water and continued to migrate through groundwater and/or surface water. Disagreeing with this interpretation, EQT filed a declaratory judgment action in the Commonwealth Court.

Weeks later, PADEP lodged a complaint for civil penalties with the Pennsylvania Environmental Hearing Board (“EHB”), seeking more than $4.5 million in penalties, supplemented by continuing fines of up to $10,000 per day for alleged “continuing violations.” PADEP also objected to the Commonwealth Court’s jurisdiction in the declaratory judgment action, arguing that EQT could not pursue the action since no penalties had actually been imposed yet.

The Pennsylvania Supreme Court ultimately ruled that EQT could pursue the declaratory judgment action due to its potential exposure to ballooning, multi-million dollar penalties based on a potentially flawed legal theory. On remand, the Commonwealth Court rejected PADEP’s legal theory, and PADEP appealed that ruling to the Pennsylvania Supreme Court, which upheld the Commonwealth Court’s decision in an opinion issued on March 28, 2018.

PADEP argued that even if a release of pollutants is corrected at the source, a violation of the Clean Streams Law continues to exist as long as contaminants remain present and migrate from one water (or part thereof) into another water (or part thereof). EQT argued that this interpretation could potentially result in limitless continuing penalties for a single release of contaminants as long as any amount of the substance, no matter how small, remains present in the environment.

PADEP countered this by pointing to its practice of capping its claim for civil penalties once the remediation standards under Act 2 have been attained. PADEP further argued that because its legal authority is limited to remedying violations of the Clean Streams Law, if the Commonwealth Court’s ruling were upheld, there would be no violation related to contaminated waters that are remote from the initial release point, which would neuter its authority to enforce the statute and restore clean waters.

The Pennsylvania Supreme Court rejected PADEP’s arguments, finding that although the Clean Streams Law “is ambiguous as it relates to the ongoing migration of previously-released contaminants among the waters of the Commonwealth and their many parts,” the most natural and reasonable reading of the statute is that a violation occurs when contaminants move from the point of the initial release into waters of the Commonwealth, but not when contaminants continue to move through waters of the Commonwealth. Therefore, once contaminants no longer pass through the initial point of entry into the water (i.e., once the leak has stopped or been contained), it is reasonable to say that the violation has ended.

The Supreme Court found that it is unreasonable to suggest that people and businesses should rely on PADEP’s “discretionary, informal, and potentially transient practice” of capping civil penalties once the remediation standards of Act 2 have been met, because PADEP’s legal theory could still result in potentially limitless civil penalties “even after all relevant cleanup requirements were met, as long as some microscopic amount of contaminants might remain present to move among waters and parts of waters.” The Court also rejected PADEP’s claim that its authority to enforce the Clean Streams Law and restore clean water would be neutered, pointing out that in addition to imposing civil penalties, PADEP also has multiple tools to require abatement and remediation of contamination, which are not constrained by the Court’s decision.

A copy of the Pennsylvania Supreme Court’s opinion can be found here.

This article was authored by Jennifer L. Hughes, Jackson Kelly, PLLC.