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Supreme Court Sides with Property Owners in EPA Challenge

U.S. Supreme Court Justice Antonin Scalia, writing for a unanimous court in a decision that holds implications for natural gas and oil leaseholds, made clear last week that access to the courts is the proper response to the "strong-arming of regulated parties" by government agencies.

The ruling gives property owners the right to file a lawsuit against the U.S. Environmental Protection Agency (EPA) and challenge the agency's orders to stop developments that it claims may threaten the nation's waters (Sackett, et al., v. Environmental Protection Agency, et al., No. 10-1062).

Faced with orders by the EPA, the high court said the targets need not wait until the agency chooses to sue them to enforce the order. The targets have the right, under the U.S. Administrative Procedure Act, to file a lawsuit as soon as they receive an order by EPA to which they object. More broadly, the court's ruling enhances citizens' rights to mount a court challenge to government orders, provided that those orders are in a final form.

The court ruling came on an appeal of a ruling by the Ninth Circuit Court of Appeals by Michael and Chantell Sackett, an Idaho couple who have a 0.63-acre parcel of property close to Priest Lake, ID, where they want to build a house. In preparing to build the house, in 2007 they filled in part of their lot with dirt and rock. A few months later, the Sacketts received from the EPA a compliance order informing them that they had violated the federal Clean Water Act (CWA). They were ordered to restore the land to its former state or face penalties that could reach $75,000/day.

EPA officials insisted -- and lower courts affirmed -- that the couple could not sue the agency to challenge the administrative order and had to wait for a court review, at the option of EPA.

In their ruling, the high court stressed that its decision was not in deciding whether the Sacketts would win their court case, but only that they had the right to file their lawsuit at their choosing when EPA's compliance order was filed.

In a separate opinion issued with the decision, Justice Samuel A. Alito Jr. wrote that the scope of the CWA to private property is unclear, and Congress or the EPA should clarify it. Alito also argued that the treatment of the Sacketts, and others denied the right to sue the EPA, was "unthinkable" in a country that values due process.

A similar lawsuit had been brought in a previous Supreme Court term by General Electric Co. (GE) over an EPA compliance order. GE was one of more than a dozen that had submitted an amicus brief in support of the Sacketts' petition. Others filing amicus briefs included the Chamber of Commerce of the United States, the Competitive Enterprise Institute, the National Institute of Manufacturers and the American Petroleum Institute (API).

"Regulated parties have been and, if history is any guide, will continue to be subject to unwarranted impositions of jurisdiction under the CWA," the API said in its brief. "When this occurs, regulated parties should not have to spend hundreds of thousands of dollars in the permitting process -- or expose themselves to extraordinary penalties if and when the government brings an enforcement action -- in order to be able to test the imposition of jurisdiction in court."

Lee Casey, a partner at Baker Hostetler, said the decision "may well revolutionize" how EPA enforces CWA's wetlands protection provisions. EPA officials claimed that the Sacketts "had unlawfully 'discharged fill material into wetlands' and imposed an expensive remediation scheme under threat of crippling penalties. The Sacketts sought judicial review of the order, but the lower courts concluded that such review was unavailable for a Clean Water Act compliance order...

"The Supreme Court, however, unanimously held that compliance orders -- at least to the extent there is a dispute over the statute's applicability in -- have all the attributes of finality necessary to support judicial review under the Administrative Procedures Act. The Court flatly rejected EPA's claims that compliance orders were not 'final' because they might be subject to continuing, informal negotiations. As a result, landowners will no longer be faced with the choice of complying with EPA's orders or risking everything by defying the agency and provoking an enforcement action before having their day in court."

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