Arsenal Coal Redux – Doctrine of Exhaustion of Administrative Remedies Trumped by the Pa Declaratory Judgment Act

By John R. Embick, Esq.

Chair, Environmental Law Section


In late December, 2015, the Pa Supreme Court issued an interesting decision that relates to the Doctrine of Exhaustion of Administrative Remedies, in the case of EQT Production Company v.  PaDEP, No. 15 MAP 2015, decided December 29, 2015, (“EPC”).  The case also addressed an important issue related to the interpretation of the civil penalty provisions of the Clean Streams Law, 35 P.S. §§ 691.1, et seq. (“CSL”), §§ 602(d) and 605.

The case was decided by the currently decimated Pennsylvania Supreme Court on a 3 to 1 vote.  The decision was authored by Chief Justice Saylor, with Justices Todd and Stevens concurring, and Justice Baer dissenting.  Justice Eakin, recently suspended by the Pa Court of Judicial Discipline, did not participate in the decision.

EPC, a natural gas producer, owned and operated an underground storage facility for containing spent fracking fluid.  The underground storage facility leaked, and pollutants, as defined by the Clean Streams Law, were released into the soil underlying the storage facility, and thence were discharged into the waters of the Commonwealth.

EPC notified PaDEP of the release, stopped the leak, and sought to address the remaining contamination under the Pa Brownfields Remediation Act, 35 P.S. §§6026.101 et seq., also known as “Act 2”.  PaDEP also threatened to assess a civil penalty under the CSL for the release.  Act 2 specifically allows the imposition of civil penalties assessable under other laws.  Under section 605(a) of the CSL, each day on which a violation occurs can be considered a separate offense, and each violation carries a maximum penalty of $10,000 per day.

PaDEP took the position that the release of pollutants continued, even after the discrete leak was plugged, because pollutants continually are released from contaminated soil, into the ground water, the latter which is part of the waters of the Commonwealth.  Further, PaDEP also took the position that each day that contamination continued to be present in the water of the Commonwealth is a continuing violation. This can be a very heavy enforcement stick.

Accordingly, EPC would remain at risk for the imposition of continuing, daily penalties until the pollution was cleaned up, or arguably until an Act 2 release was obtained.  There is no safe harbor which would toll or suspend the accrual of penalties pending the outcome of the litigation.  EPC took the position that civil penalties could be assessed only so long as contaminants were discharged from the underground storage impoundment.

PaDEP could, in the exercise of its enforcement discretion, limit the imposition of civil penalties both in terms of amount and duration.  For decades, PaDEP has utilized a civil penalty assessment procedure to determine the amount of civil penalties in CSL matters, and the procedure takes into account such factors as duration, concentration, harm, and cooperation, etc. 

Under the provisions of the CSL, PaDEP must file a complaint for civil penalties under the CSL before the Pa Environmental Hearing Board (“EHB”) for a determination.  The EHB then holds a hearing at which PaDEP must prove the violations and the basis for the assessment of civil penalties.  Depending on the outcome, the parties may then take an appeal to Commonwealth Court, and possibly beyond.

EPC elected to test PaDEP’s interpretation of the Clean Streams Law penalties by initiating a Declaratory Judgment Act action in Commonwealth Court.  See, 42 Pa.C.S. §§7531-7541 (“DJA”).  EPC had an administrative opportunity to test PaDEP’s legal theory by defending against a CSL civil penalty complaint, which PaDEP filed with the EHB (the civil penalty complaint was filed with the EHB two weeks after the DJA action was initiated by EPC).  The EHB has jurisdiction to hear appeals from final actions taken by PaDEP, including civil penalty complaints filed under the provisions of the CSL.

In preliminary objections, PaDEP asked Commonwealth Court to dismiss the DJA complaint, arguing that EPC possessed ample administrative remedies which EPC must first exhaust before EPC initiated a DJA action.  Section §7541(c)(2) of the DJA indicates thatdeclaratory relief is unavailable with respect to proceedings within the exclusive jurisdiction of administrative tribunals.

Notwithstanding §7541(c)(2) of the DJA, the courts have established a number of prerequisites, which seemingly have carved out a number of exceptions.  See generally, Commonwealth, Office of the Governor v. Donahue, 626 Pa. 437, 448, 98 A.3d 1223, 1229 (2014).  EPC averred that its cause was similar to that addressed in Donahue in that the legal question that it posed was adequately developed and ripe for judicial review; it would suffer direct, immediate, and substantial hardship if review was delayed; the question was purely legal (and not factual) and the action would settle immediate controversies.

So, the Court had to consider whether the case presented the kind of issues which warrant the by-passing of the available administrative remedies. It looks that the Pa Supreme Court felt that the factors of: (1) large and continuing civil penalties; (2) a pure issue of law; (3) EPC’s inability to initiate an administrative remedy (at the time EPC filed the DJA action, PaDEP had not initiated a civil penalty action before the EHB); and (4) existence of by-pass case precedent, all combined to trump the available administrative remedy.

The Court seemed to agree that the EPC matter was analogous to the issue presented in Sackett v. EPA,  566 U.S. __, 132 S. Ct. 1367 (2012). In Sackett, the U.S. Supreme Court ruled that U.S. EPA (“EPA”) compliance orders, issued under the authority of the Federal Clean Water Act (“CWA”) may be immediately appealed under the provisions of the Administrative Procedures Act (“APA”).  Prior to this holding, the EPA, and many courts, held the view that such compliance orders could only be reviewed at the time when the agency sought to enforce the order.  During this time prior to enforcement, heavy civil penalties assessable under the CWA presumably would accumulate.  Sackett raised an issue often viewed as companion to the exhaustion-of-administrative-remedies issue, i.e., the pre-enforcement review doctrine.

The Pa High Court also turned to the Arsenal Coal pre-enforcement review doctrine for support. See, Arsenal Coal Co. v. Commonwealth, 505 Pa. 198, 200-01, 477 A.2d 1333, 1335 (1984).  The Arsenal Coal case involved an attack by the coal mining industry on then newly promulgated rules and regulations governing the extraction and processing of underground coal. Arsenal Coal is the seminal case in the pre-enforcement review doctrine line for evaluating matters which may be filed within Commonwealth Court’s original jurisdiction and which may thus by-pass the available administrative remedies. 

In Arsenal Coal, the Pa. Supreme Court allowed a challenge to the coal mining regulations to proceed in Commonwealth Court prior to the time when the agency might seek to enforce the regulations (and any challenges would subsequently be heard before the EHB).

In remanding the EPC case to Commonwealth Court, the Pa. High Court stated:

“We hold that the impact of the Department’s threat of multi-million dollar assessments against EPC was sufficiently direct, immediate, and substantial to create a case or controversy justifying pre-enforcement judicial review via a declaratory judgment proceeding, and that exhaustion of administrative remedies relative to the issues of statutory interpretation that the company has presented was unnecessary.”

Slip Op. at 12.

It looks to me like the three justices were primarily motivated by the specter of big civil penalties and the seeming unfairness of allowing the penalties to mount up while the company challenged the legal theory of the regulatory agency. 

Justice Baer penned a dissent in which he opined that under established principles, EPC’s case had not yet matured into an actual case or controversy, since PaDEP’s legal position on penalties associated with continuing violations is not determinative, and the EHB must decide the issue.  Justice Baer found that the administrative remedy was adequate and suitable, and therefore should be followed.

So, it appears as if the Pa Supreme Court has created another limited means to challenge PaDEPaction (or, in this case, a legal position held by PaDEP) outside of the path of available administrative remedies.  Money talks.