The Pennsylvania Supreme Court has paved the way for EQT Corp. to challenge the state Department of Environmental Protection’s $4.5 million fine against it for a 2012 impoundment leak in Tioga County.

In a 3-1 decision,, Chief Justice Thomas G. Saylor, writing for the majority, said EQT’s argument against the DEP’s interpretation of the state’s Clean Streams Law may be reviewed by a lower court. The company has been battling the agency about the civil penalty since May 2014, when it was first proposed for $1.27 million, including $900,000 for alleged ongoing discharges from the impoundment.

While the DEP recommends fines, the state’s Environmental Hearing Board (EHB) makes a determination of the appropriate amount and imposes them. EQT had circumvented the EHB and filed a complaint directly with the state Commonwealth Court, challenging the DEP’s interpretation of the law and asking the court, rather than the EHB, to decide whether the fines could include fees for ongoing discharges.

In response, the DEP filed a lawsuit seeking $4.53 million for ongoing discharges and said the company was failing to cooperate with its investigation (see Shale Daily, Oct. 7, 2014). In its complaint, the DEP said “to the extent that flowback water from Marcellus drilling operations, and/or its constituents, continues to be present in any water of the Commonwealth after the date that this complaint is filed with the EHB, the pollution continues and [EQT] continues to incur liability for additional penalties.”

The DEP asked the lower court to dismiss EQT’s complaint, which it did, saying there was no controversy because the EHB is the entity that determines and imposes fines. EQT appealed that ruling, and during oral arguments before the state Supreme Court in December the company argued that it should not be subjected to a lengthy administrative process, maintaining that its challenge to the DEP’s interpretation of the Clean Streams Law is a legal issue that the Commonwealth Court should review.

Saylor wrote that the case falls within a class of disputes that are proper for pre-enforcement judicial review, especially given that the challenged regulations are creating hardship for EQT. The high court said the DEP’s “threat of multi-million dollar assessments” against EQT creates a controversy and remanded the case to the Commonwealth Court.

In May 2012, the DEP said it discovered a release of flowback water from a transfer line serving the impoundment and, in a separate incident, EQT reported that the impoundment was leaking, which affected a cold water fishery, a stream, an unnamed tributary, vegetation and groundwater. EQT later cleared the site of wastewater and sludge. It maintains that all discharges ended in June 2012 and has argued that it had no administrative remedy to prevent fines from accruing. EQT also claimed that DEP’s interpretation of the Clean Streams Law and the fines recommended under it should be judicially reviewed for broader impacts on the industry, citing a similar case against Sunoco Logistics Partners LP.

Industry attorneys have said that the ability to have legal issues resolved in court could resolve some leverage regulators have by allowing a penalized party to bypass the costly administrative process (see Shale Daily, Nov. 25, 2015). In his dissent, Justice Max Baer said the court was undermining regulators’ legal ability to review cases before the court, saying the “majority has created an exception to the requirement of exhaustion of administrative remedies that will swallow the rule.”