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EQT Production Co. v. Commonwealth

Supreme Court of Pennsylvania

March 28, 2018

EQT PRODUCTION COMPANY, Appellee
v.
DEPARTMENT OF ENVIRONMENTAL PROTECTION OF THE COMMONWEALTH OF PENNSYLVANIA, Appellant

          ARGUED: November 28, 2017

          Appeal from the Order of the Commonwealth Court at 485 MD 2014, dated 1/11/17

          SAYLOR, C.J., BAER, TODD, DONOHUE, DOUGHERTY, WECHT, MUNDY, JJ.

          OPINION

          SAYLOR, CHIEF JUSTICE.

         In this direct appeal, we consider the scope of a civil penalty applicable to violations of environmental protection statutes regulating the entry of contaminants into any of the waters of the Commonwealth.

         I. Background

         Under the Clean Streams Law, [1] the unpermitted release of industrial waste and other contaminants into any of the waters of the Commonwealth is prohibited. Section 301 of the enactment provides:

No person or municipality shall place or permit to be placed, or discharged or permit to flow, or continue to discharge or permit to flow, into any of the waters of the Commonwealth any industrial wastes, except as hereinafter provided in this act.

35 P.S §691.301. Section 307 restates this prohibitory language in somewhat different terms, forbidding persons and municipalities from "discharg[ing] or permit[ting] the discharge" of industrial wastes "in any manner, directly or indirectly" into any of the waters of the Commonwealth, absent authorization under DEP rules and regulations or without a permit. See id. §691.307. Section 401 -- which begins with an introductory title "[p]rohibition against other pollutions" -- makes it unlawful for persons or municipalities to "put or place" or "allow or permit to be discharged from property owned or occupied by such person or municipality" into any of the waters of the Commonwealth "any substance of any kind or character resulting in pollution." Id. §691.401.

         In the Clean Streams Law, the term "Waters of the Commonwealth" is defined very broadly to encompass "any and all" of an extensive series of waters, including rivers; streams, creeks, springs and rivulets; lakes and ponds; water courses; and ditches, as well as "all other bodies or channels or conveyance of surface and underground water, or parts thereof, whether natural or artificial." Id. §691.1. Per Section 605, violators are subject to civil penalties of up to $10, 000 per day for each violation. See id. §691.605(a).

         The present litigation is a declaratory judgment proceeding initiated by Appellee EQT Production Company ("EQT"), which became exposed to the civil penalties under the Clean Streams Law in 2012 on account of leaks from an impoundment used to contain impaired water flowing back from hydraulic fracture gas wells.[2] According to the complaint, much of the penalty exposure asserted by the regulatory agency, the Department of Environmental Protection ("DEP" or the "Department"), which is the appellant herein, was premised on a "continuing violation" theory predicated on passive migration of contaminants from soil into water. EQT asserted:

DEP's articulated legal position to support this proposed penalty is that every day that contaminants from the [impoundment] remain in the subsurface soil and passively enter groundwater and/or surface water constitutes a "continuing violation" of sections 301, 307 and 401 of the Clean Streams Law, for which a separate civil penalty may be assessed for each day of alleged violation.

         Complaint in EQT Prod. Co. v. DEP, No. 485 M.D. 2014 (Pa. Cmwlth.), at ¶21 (emphasis in original). The company expressed the concern that DEP's soil-to-water theory "means that civil penalties may be asserted against [EQT] as long as any contaminant remains in the environment, " creating significant uncertainty and potentially unending civil liability. Id. at ¶35 (emphasis in original). EQT contended that such position was contrary to the plain wording of the governing statutes, was not supported by any judicial precedent, and defeated the legislative intent of Act 2 of 1995, [3] a separate enactment centered on environmental remediation.

         In terms of an affirmative statement of its own interpretation of the statutory overlay, EQT indicated:

Sections 301, 307 and 401, in conjunction with section 605 of the Clean Streams Law, 35 P.S. §691.605 (establishing civil penalty amounts for violations) grant DEP authority to assess a civil penalty only for the days that pollutants were actually discharged from the [impoundment], not for any days that previously released constituents passively migrate through the environment into groundwater or surface water.

         Complaint in EQT Prod. Co., No. 485 M.D. 2014, at ¶32 (emphasis in original).

         Shortly after the filing of the complaint, the Department lodged a civil penalty complaint against EQT in the Environmental Hearing Board (the "EHB" or the "Board"), seeking imposition of a sanction of at least $4, 532, 296. Relevant to the progress of the declaratory judgment litigation as discussed below, various paragraphs of the complaint asserted that penalties continued to accrue for each day that a contaminant deriving from the impoundment "continues to be present in any waters of the Commonwealth." Complaint in In re EQT Prod. Co., No. 2014-140-CP-L (EHB), at ¶¶60, 89.

         In its answer and new matter addressing EQT's complaint for declaratory relief, [4]the Department observed that the relevant provisions of the Clean Streams Law do not employ the phrase "actual discharge" and highlighted EQT's failure to provide a definition for the term that it employed. See Answer and New Matter in EQT Prod. Co., No. 485 M.D. 2014, at ¶¶43, 44 ("The Department does not know what [EQT] views to be an 'actual discharge.'"). The agency also criticized any suggestion that penalty liability cannot be based upon "passive migration." Id. at ¶45. Furthermore, the Department charged that EQT had unfairly characterized the agency's liability theories and posited that the company's asserted omissions "compel the Department to articulate its legal position in full detail." Id. at ¶21.

         DEP then described EQT's penalty exposure as follows. The agency explained that evidence would demonstrate that: industrial waste from the company's impoundment remained in bedrock and soil beneath the impoundment's liner for a period of time longer than EQT contemplated in its portrayal of an "actual discharge"; industrial waste can bind to the soil or perch above an aquifer, "continually polluting new groundwater as groundwater flows through the column of bound or perched industrial waste"; EQT's "plume of pollution . . . progressively and over time moved into regions of uncontaminated areas of surface and groundwater"; and this would continue for months or years. Id. ¶¶56-59. In these passages, DEP appears to have been advancing its soil-to-water migration theory, the continuing-violation theory such as was the subject of the complaint. The passages can also be read more broadly, however, to suggest new infractions as contaminants spread from discrete bodies of water into new regions of water, a water-to-water theory of serial violations upon which the Department would come to focus upon more specifically. Even more broadly, the Department charged that EQT was subject to civil penalties for "[e]ach day that [the company's] impact upon a water of the Commonwealth constitutes 'pollution'" and on each day that the industrial waste that was to be contained in the impoundment impairs waters of the Commonwealth. Id. at ¶¶71-72.

         EQT proceeded to file an application for summary relief premised on discounting only the last and broadest formulation by DEP. See Pa.R.A.P. 1532(b). According to the company, DEP's pleadings and discovery responses conveyed its intention to seek civil penalties for every day that any contaminants deriving from the company's impoundment "remain in the environment." Application for Summary Relief in EQT Prod. Co., No. 485 M.D. 2014, at ¶13. EQT criticized such an interpretation, indicating that the relevant substantive provisions of the Clean Streams Law turn upon entry of a contaminant "into a water of the Commonwealth." Id. at ¶14 (emphasis in original). It was the company's position at this stage that:

Under the express text of the [Clean Streams Law], there is no violation for days on which an industrial waste or a substance resulting in pollution, after having previously been discharged into a water of the Commonwealth, continues to be present in that water.

         Application for Summary Relief in EQT Prod. Co., No. 485 M.D. 2014, at ¶15 (emphasis in original). Ultimately, EQT asked only for two facially straightforward pronouncements of declaratory relief. First, the company requested a declaration that a violation of the relevant substantive provisions of the Clean Streams Law occur only on a day in which a person "allows an industrial waste or a substance resulting in pollution to actually enter into waters of the Commonwealth." Id. at ¶18(a). Second, EQT asked the court to confirm that the mere presence of an industrial waste or a substance resulting in pollution of the waters of the Commonwealth does not, in and of itself, constitute a violation. See id. ¶18(b).

         It is worth pausing at this juncture to consider that there is no material dispute that the second of these propositions is true. While DEP has repeatedly declined to squarely confirm that it will not seek penalties for the mere presence of contaminants in waters of the Commonwealth, every theory of a continuing violation or serial violations that the agency has ever attempted to defend on developed reasoning contemplates movement of contaminants into or within water. See, e.g., Brief for Appellant at 18 (couching liability under Sections 301, 307 and 401 in terms of an initial discharge or "the unpermitted continuing or indirect ¶ow" of contaminants (emphasis added)); accord Brief of Amicus Clean Air Council at 21 (recognizing that "[t]he 'presence' of water pollutants . . . is not a legal standard for liability under Section 301."); Brief for Amici Citizens for Pennsylvania's Future and Sierra Club at 8 n.8 ("Amici Curiae do not read [sic] the Department as having taken the position below that the continued presence of the industrial waste in a particular water of the Commonwealth, by itself, is an ongoing violation of Section 301[.]" (emphasis in original)). Indeed, all of the statutes under review plainly contemplate such movement as a predicate for violations. 35 P.S. §§691.301 (prohibiting various forms of releases of industrial waste "into any of the waters of the Commonwealth" (emphasis added), 691.307 (same), 691.401 (same for substances resulting in pollution).[5]

         As to the other proposition advanced in the summary-relief application -- i.e., that an infraction occurs only on days when a violator allows a contaminant to actually enter into waters of the Commonwealth -- the parties' submissions also suggest a substantial overlap in the common understanding. The consensus is, again, in the degree to which movement into water is essential to a violation. The differences are, first, whereas EQT phrased the act or omission giving rise to liability as "allow[ing] a contaminant to actually enter into waters of the Commonwealth, " DEP supplements the phrase to encompass a variety of other terms such as discharges, continued discharges, indirect discharges, permits to flow, and continuing to permit to flow. See, e.g., Brief for Appellant at 22, 24-25. Second, DEP has stressed that the governing statutes contemplate movement not just "into waters, " but into "any of the waters" of the Commonwealth. Id. at 24 (emphasis adjusted).

         The substance of the application for summary relief, however, cannot fairly be understood to discount DEP's broader view in these regards, or, more specifically, either of its soil-to-water or water-to-water migration theories, both of which require movement into a water (or a part thereof). For example, there was no developed suggestion, in EQT's application or its initial supporting brief, concerning any distinction between active and passive conduct, or on a constrained definition of the concept of "allowing" movement into water. Moreover, EQT asserted that there could be no violation, once a contaminant has moved into a water, for mere presence in "that water, " Application for Summary Relief in EQT Prod. Co., No. 485 M.D. 2014, at ¶15 (emphasis added), thus avoiding any tension with the water-to-water theory. Furthermore, EQT did not carry over, from its complaint and into the application for summary relief, the notion of an "actual discharge" from the impoundment.

         For these reasons, and otherwise, the application can be reasonably read only as an effort to confirm that the mere presence of contaminants in the environment does not, in and of itself, establish a violation, and that movement into water is a touchstone. Indeed, had the Department merely acceded to summary relief on the precise terms advanced by EQT, it would have been untenable for the company to claim that the court had confirmed anything other than these modest propositions.[6]

         The Department opposed summary relief. In its response, the agency observed -- consistent with the above summary of the EQT's application for summary relief relative to the soil-to-water and water-to-water theories -- that the application failed to challenge any portion of the agency's legal theories. See Answer to Application for Summary Relief in EQT Prod. Co., No. 485 M.D. 2014, at 6. Notably, in neither the pleadings nor its response to the application for summary relief did the Department include a request for a declaratory judgment in its favor on the theories that it had interjected into the summary relief proceedings. Rather, the Department merely asked that relief on the complaint and application should be denied. See Answer and New Matter in EQT Prod. Co., No. 485 M.D. 2014, at 26; Answer to Application for Summary Relief in EQT Prod. Co., No. 485 M.D. 2014, at 12. Nevertheless, in a supporting brief, DEP proceeded to reframe, and to greatly broaden, the questions before the court on summary review to advance its soil-to-water theory of a continuing violation, as well as the water-to-water theory of serial violations. See, e.g., Brief in Opposition to Application for Summary Relief in EQT Prod. Co., No. 485 M.D. 2014, at 1-2 (presenting a counter-statement of the questions presented).

         In a reply brief, EQT for the first time contested the water-to-water theory, characterizing it as a novel, "revised continuing violation theory." Reply Brief in Support of Application for Summary Relief in EQT Prod. Co., No. 485 M.D. 2014, at 1.[7] In this submission, EQT still did not specifically discuss the soil-to-water theory that was the subject of its original complaint, but which the company did not itself carry forward into the summary relief proceedings.

         Upon its review, the Commonwealth Court accepted the Department's reframing of the issues, at least in part, centering its decision on the water-to-water theory. See EQT Prod. Co., 153 A.3d at 433 ("The issue of statutory analysis presented here, as phrased by the Department, is whether . . . every time a person 'allow[s] his, her, or its industrial waste or pollutional substance to flow from one water of the Commonwealth into another water of the Commonwealth, ' the person is committing a new and separate violation[.]"). Notably, and presumably in light of the parties' ultimate focus on that theory, the court also afforded no specific attention to the soil-to-water theory.

         In its analysis, preliminarily, the Commonwealth Court proceeded sua sponte to narrow its statutory analysis of violations to Section 301.[8] In this regard, in terms of Section 307, the court reasoned that the leaks from EQT's impoundment did not qualify as a "discharge, " which is the specified concern of Section 307. In support of this conclusion, the court borrowed a definition of "discharge" from DEP regulations implementing programing under the National Pollutant Discharge Elimination System ("NPDES"), see 33 U.S.C. §1342. This regulatory definition of "discharge" -- for purposes of the NPDES program -- concerns "[a]n addition of any pollutant to surface waters of this Commonwealth from a point source." 25 Pa. Code §92a.2 (emphasis added). Based on this definition, and because the industrial waste from EQT's impoundment initially infiltrated groundwater, and not surface water, the Commonwealth Court found that no discharge had occurred. See EQT Prod. Co., 153 A.3d at 433-34. Again, the court's analysis was entirely of its own accord, as no party had suggested either that Section 307 did not apply, or that the NPDES-related definition of discharge was in any way relevant.

         As to Section 401, the court posited -- based on the introductory title and without considering that the operative terms of the statute can be read more broadly than the title suggests -- that the provision concerned only forms of pollution other than industrial waste. See id. at 433 ("Because the release [from EQT's impoundment] emanated from an industrial site, the waste at issue is considered industrial waste, regulated under Article III of The Clean Streams Law, and not Article IV (relating to other forms of pollutants)." (emphasis added)).

         Focusing, then, on Section 301, the Commonwealth Court highlighted the statute's proscription against "'plac[ing] or permit[ting] to be placed, or . . . permit[ting] to ¶ow, or continu[ing] to . . . permit to flow, into any waters of the Commonwealth' industrial waste." Id. at 434 (quoting 35 P.S. §691.301) (interlineations in original). By virtue of this language, the court reasoned that the General Assembly intended to expand the statute's coverage not only to discharges (as the court had narrowly defined the term), but also to instances in which industrial waste enters into the Commonwealth's groundwater or surface waters through other means. See id. ("This interpretation would cover situations where industrial waste escapes containment and flows over land into surface waters or leaks into the soil and enters the Commonwealth's groundwater."). Accordingly, the court concluded that Section 301's proscription applied to the leak from EQT's impoundment, based on the migration of contaminants through soil into groundwater. See id.[9]

         The Commonwealth Court, however, proceeded to reject the Department's water-to-water theory of serial violations. Initially, the court expressed its concern that DEP's interpretation "would result in potentially limitless continuing violations for a single unpermitted release of industrial waste while any of the waste remained in any water of the Commonwealth, or until Act 2 remediation is completed." Id. at 435 (emphasis in original). According to the court, the General Assembly did not intend for these sections to establish "seemingly endless violations following but a single release of industrial waste or other prohibited substances from a point source or otherwise into a water of the Commonwealth." Id. at 435-36.

         Moreover, the Commonwealth Court opined that violations of the Clean Streams Law require some culpable action or inaction by violators. Thus, it was the court's position that passive movement of industrial waste cannot establish infractions. See id. at 436. Instead, the court indicated that violations are confined according to a concept of an "initial active discharge or entry of industrial waste into waters of the Commonwealth." Id. at 437.[10] For this reason, the court found that authorization was lacking for "ongoing penalties for the continuing presence of an industrial waste in a waterway of the Commonwealth following its initial entry into the waterways of the Commonwealth." Id.

         In this regard, the Commonwealth Court opined that Section 301 simply was not concerned with the progress of remediation efforts after the cessation of what the court termed an "initial active discharge or entry of industrial waste" into waters. See id. at 436 ("Had the General Assembly intended that a violation of Section 301 . . . would result in a continuing violation until remediation is achieved, [it] would have clearly stated as such."). Relative to remediation, the court also highlighted DEP's powers, under the Clean Streams Law, to commence an action at law or in equity seeking abatement of nuisances in the form of contamination. See id. at 436-37 (citing 35 P.S. §691.601(a)). The court additionally alluded to the agency's authority to issue such orders as may be necessary to aid in the enforcement of the Clean Streams Law. See id. at 437 (citing 35 P.S. §691.610).

         In further support of its construction of Section 301, the Commonwealth noted that penal statutes are to be strictly construed. Id. at 436 (citing 1 Pa.C.S. §1928). Additionally, the court rejected the Department's position that it was entitled to deference as the administrative agency charged with interpretation and enforcement of the Clean Streams Law. Id. at 436 n.23. See generally Seeton v. Pa. Game Comm'n, 594 Pa. 563, 578, 937 A.2d 1028, 1037 (2007) (discussing deference to agencies' interpretations relative to ambiguous statutes). In this respect, the court deemed the language of Section 301 to be sufficiently plain to override DEP's approach. Furthermore, the court considered the water-to-water theory to reflect a position developed in litigation, as to which deference should be constrained. See generally Huntley & Huntley, Inc. v. Borough Council of Borough of Oakmont, 600 Pa. 207, 228, 964 A.2d 855, 867-68 (2009).

         After the issuance of the Commonwealth Court's decision, the EHB rendered an adjudication imposing a civil penalty upon EQT of $1, 137, 296. See DEP v. EQT Prod. Co., No. 2014-140-CP-L, 2017 WL 2399756 (EHB May 26, 2017). The Board offered an extensive recitation of the facts relevant to the number and duration of the violations and the amount of penalties, finding EQT's conduct and omissions to have been reckless both in terms of the leaks and the timeliness and scope of the company's remediation response. See, e.g., id. at *21, 48. In terms of the amount of ...


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