Court Opinion

ID: 4649847
Source: CourtListenerOpinion
Date Created: 2021-01-07 21:00:31.555548+00
Date Added: 2024-06-11T08:01:28.032255
License: Public Domain

UNPUBLISHED

                       UNITED STATES COURT OF APPEALS
                           FOR THE FOURTH CIRCUIT

                                       No. 19-1962

AUGUST MACK ENVIRONMENTAL, INC.,

                     Plaintiff – Appellant,
             v.

UNITED STATES ENVIRONMENTAL PROTECTION AGENCY,

                    Defendant – Appellee.

Appeal from the United States District Court for the Northern District of West Virginia, at
Clarksburg. Thomas S. Kleeh, District Judge. (1:18-cv-00012-TSK)

Argued: October 26, 2020                                        Decided: January 7, 2021

Before KING and DIAZ, Circuit Judges, and Stephanie A. GALLAGHER, United States
District Judge for the District of Maryland, sitting by designation.

Vacated and remanded by unpublished opinion. Judge King wrote the opinion, in which
Judge Gallagher joined. Judge Diaz wrote a dissenting opinion.

ARGUED: Philip R. Zimmerly, BOSE MCKINNEY & EVANS, LLP, Indianapolis,
Indiana, for Appellant. Katelin Shugart-Schmidt, UNITED STATES DEPARTMENT OF
JUSTICE, Washington, D.C., for Appellee. ON BRIEF: Bradley R. Sugarman, Andrew
M. McNeil, BOSE MCKINNEY & EVANS LLP, Indianapolis, Indiana, for Appellant.
Jeffrey Bossert Clark, Assistant Attorney General, Eric Grant, Deputy Assistant Attorney
General, Evelyn Ying, Austin Saylor, Environment and Natural Resources Division,
UNITED STATES DEPARTMENT OF JUSTICE, Washington, D.C.; Benjamin Cohan,
Lee Tyner, UNITED STATES ENVIRONMENTAL PROTECTION AGENCY,
Washington, D.C., for Appellee.
Unpublished opinions are not binding precedent in this circuit.

                                            2
KING, Circuit Judge:

       The plaintiff in these proceedings, August Mack Environmental, Inc., seeks to

recover nearly $2.7 million in costs incurred cleaning up a contaminated industrial property

in Fairmont, West Virginia, that has been designated as a so-called “Superfund” site under

the Comprehensive Environmental Response, Compensation, and Liability Act

(“CERCLA”).      The defendant, the Environmental Protection Agency (the “EPA”),

dismissed August Mack’s administrative claim. In principal part, the EPA determined that

August Mack’s failure to properly seek preauthorization for the cleanup work precluded a

recovery of its costs from the Superfund. When August Mack sought review of the EPA’s

adverse decision in the Northern District of West Virginia, the district court dismissed the

operative complaint under Federal Rule of Civil Procedure 12(b)(6), for failure to state a

claim upon which relief can be granted. See Order Granting Motion to Dismiss Amended

Complaint, August Mack Env’t, Inc. v. EPA, No. 1:18-cv-00012 (N.D. W. Va. July 11,

2019), ECF No. 46 (the “Dismissal Order”). August Mack appeals from the court’s

judgment and, as explained herein, we vacate and remand.

                                             I.

                                            A.

       In July 2000, the thirty-eight-acre contaminated industrial property in Fairmont —

known as the Big John’s Salvage–Hoult Road Superfund Site (the “BJS Site,” or simply

the “Site”) — was added to the EPA’s National Priorities List (the “NPL”), which rendered

                                             3
the BJS Site eligible to receive money from the Superfund for cleanup. 1 The Site includes

land historically used in the operation of a coal tar refining facility and for salvage and

waste disposal operations. Reilly Tar and Chemical Corporation owned a portion of the

Site and operated a coal tar processing plant there for about forty years, from at least 1933

to 1973. Domestic Coke Corporation sold crude coal tar to Reilly until 1948 and owned a

railroad right-of-way that traversed a portion of the Site. In January 1973, Reilly sold the

property to Big John’s Salvage, Inc., which operated a junk salvage facility on the Site until

approximately 1984.      Big John’s Salvage accepted and stored waste materials that

contained hazardous substances and various salvageable materials, including crushed non-

saleable fluorescent light bulbs, lead dust, oil containing mercury, drummed liquid wastes,

and other wastes from Westinghouse Electric’s light bulb manufacturing plant.

       The foregoing uses of the BJS Site resulted in its adulteration with contaminated tar

and other hazardous substances. After the Site was placed on the NPL, the EPA identified

Vertellus Specialties, Inc., ExxonMobil Corporation, and CBS Corporation as “Potentially

Responsible Parties” under CERCLA. 2         On October 10, 2012, the three Potentially

       1
        The facts spelled out herein are drawn from the record on appeal, and are primarily
from August Mack’s operative complaint against the EPA and the complaint’s exhibits,
one of which is the Consent Decree that governed cleanup of the BJS Site.
       2
          A Potentially Responsible Party under CERCLA means “any person who may be
liable pursuant to section 107(a) of CERCLA, 42 U.S.C. 9607(a), for response costs
incurred and to be incurred by the United States.” See 40 C.F.R. § 304.12(m). Vertellus
is the successor-in-interest to Reilly with respect to the BJS Site. Further, ExxonMobil is
the successor-in-interest to Domestic Coke, and CBS is the successor-in-interest to
Westinghouse.

                                              4
Responsible Parties entered into a Consent Decree with the EPA and the West Virginia

Department of Environmental Protection.          The Potentially Responsible Parties were

explicitly listed as being bound by the Consent Decree, which further provided that

“[n]othing in this Consent Decree shall be construed to create any rights in, or grant any

cause of action to, any person not a Party to this Consent Decree.” See Consent Decree,

August Mack Env’t, Inc. v. EPA, No. 1:18-cv-00012, at 77 (N.D. W. Va. June 1, 2018),

ECF No. 23-1. Further, according to the Consent Decree’s terms, the Northern District of

West Virginia was given jurisdiction over the subject matter of the Consent Decree.

       Pursuant to the Consent Decree, Vertellus was required to perform cleanup work on

the Site, as specified and approved by the EPA. With the EPA’s approval, Vertellus hired

August Mack, the plaintiff here, as the supervising contractor of the Site’s cleanup. August

Mack is an Indiana-based environmental firm that provides, among other things, regulatory

compliance and remediation services.

       Additionally, the Potentially Responsible Parties were required to provide the EPA

with nearly $37 million in cash and financial assurances to be used to clean up the BJS

Site, which constituted funds specific thereto. These Site-specific funds served as a

performance guarantee for the cleanup efforts. Under the Consent Decree, if Vertellus

ceased performing the cleanup work, or if the EPA determined that Vertellus’s work was

unsatisfactory, the EPA could issue a Work Takeover Notice. Such a Notice would trigger

the EPA’s rights to take custody of the Site-specific funds and allow the EPA to complete

the work itself.

                                             5
      August Mack performed cleanup work at the BJS Site for more than three years,

from about October 2012 to May 2016. The EPA monitored and approved all of August

Mack’s actions during those cleanup efforts. For example, August Mack prepared and

submitted a Removal Design Work Plan that specifically identified the cleanup work to be

conducted, which the EPA then reviewed and approved. August Mack also engaged in

other pre-design investigation activities, including evaluation of sediment, soil, and

groundwater, in support of the Work Plan.

      August Mack expected to be reimbursed for its work at the BJS Site by Vertellus or

from the $37 million in Site-specific funds. In May 2016, Vertellus declared Chapter 11

bankruptcy and notified the EPA that it would cease cleanup efforts at the BJS Site.

Pursuant to the Consent Decree, the EPA issued a Work Takeover Notice of the Site and

assumed responsibility for the cleanup operations. The Site-specific funds were then

transferred to the EPA and placed in a Special Account.

      After Vertellus filed for bankruptcy, August Mack made a series of efforts to recover

nearly $2.7 million it had expended in cleaning up the BJS Site and had not been paid.

August Mack unsuccessfully filed claims against Vertellus in bankruptcy court. It also

requested reimbursement of its response costs from both CBS and ExxonMobil, but those

requests were rejected. In January 2017, August Mack requested that the EPA reimburse

it from the Superfund or from the Special Account. The EPA denied any reimbursement

or recovery to August Mack.

                                            6
                                             B.

       In March 2017, August Mack appealed the EPA’s denial of reimbursement to the

EPA’s Office of Administrative Law Judges and was accorded an administrative hearing.

The EPA moved for a dismissal of the August Mack administrative proceedings. On

December 18, 2017, an EPA administrative law judge (the “ALJ”) granted the EPA’s

motion to dismiss, ruling that August Mack had not secured the agency’s express

preauthorization, pursuant to 40 C.F.R. § 307.21(b), before it sought reimbursement from

the Superfund for the response costs it had incurred in cleaning up the BJS Site. 3 More

specifically, the ALJ applied a strict compliance standard and faulted August Mack for

failing to fill out and submit the EPA’s preauthorization form, i.e., EPA Form 2075-3. In

so doing, the ALJ rejected August Mack’s contention that substantial compliance with the

preauthorization process is sufficient and that strict compliance is not required.

Additionally, the ALJ denied August Mack’s claim for disbursement from the Special

Account because August Mack was not a party to the Consent Decree and because the ALJ

lacked jurisdiction over those Site-specific funds.

       On January 17, 2018, August Mack filed its action in the Northern District of West

Virginia, pursuant to 42 U.S.C. § 9612(b)(5), requesting court review of the ALJ’s denial

of its administrative claim for reimbursement from the Superfund. August Mack later

       3
        In relevant part, 40 C.F.R. § 307.21(b) provides that response costs will be eligible
for payment from the Superfund if the “response action is preauthorized by the EPA
pursuant to § 307.22” and the “costs are incurred for activities within the scope of EPA’s
preauthorization.” The preauthorization process is further explained in § 307.22.

                                             7
amended its complaint to add a claim for reimbursement from the Special Account. The

EPA then filed a motion in the district court to dismiss the operative complaint under Rule

12(b)(6), for failure to state a claim upon which relief can be granted.

       By its Dismissal Order of July 11, 2019, the district court granted the EPA’s motion

to dismiss, being satisfied that the ALJ had not acted arbitrarily or capriciously in denying

August Mack’s reimbursement claims. According to the Dismissal Order, August Mack

had neither sought nor received preauthorization from the EPA and was therefore ineligible

for reimbursement from the Superfund. The court rejected August Mack’s argument that

the doctrine of substantial compliance applies to the question of whether a claimant has

fulfilled the preauthorization requirements for Superfund reimbursement. The court also

ruled that August Mack could not recover its response costs from the Special Account

because August Mack was not a party to the Consent Decree. This appeal followed, and

we possess jurisdiction pursuant to 28 U.S.C. § 1291.

                                             II.

       We review de novo a district court’s dismissal of a complaint for failure to state a

claim under Federal Rule of Civil Procedure 12(b)(6). See S.C. Dep’t of Health & Env’t

Control v. Com. & Indus. Ins. Co., 372 F.3d 245, 255 (4th Cir. 2004). In assessing a Rule

12(b)(6) motion, the court is obliged to “accept as true all of the factual allegations

contained in the complaint.” See Anderson v. Sara Lee Corp., 508 F.3d 181, 188 (4th Cir.

2007) (internal quotation marks omitted). When an appeal to a court of appeals relates to

a district court’s dismissal of a complaint involving review of an agency decision, the

                                              8
agency ruling is not to be vacated absent an “arbitrary or capricious abuse of discretion”

by the agency. See 42 U.S.C. § 9612(b)(5). An abuse of discretion occurs when the agency

action is arbitrary or capricious. See United States v. Dillard, 891 F.3d 151, 158 (4th Cir.

2018) (recognizing that a “district court abuses its discretion when it acts arbitrarily”);

United States v. Torrez, 869 F.3d 291, 321 (4th Cir. 2017) (explaining that under the abuse

of discretion standard, we “must determine whether the court’s exercise of discretion[] . . .

was arbitrary or capricious”). Of course, an error of law also constitutes an abuse of

discretion. See Hunter v. Earthgrains Co. Bakery, 281 F.3d 144, 150 (4th Cir. 2002).

                                            III.

       CERCLA created the federal Superfund to clean up uncontrolled and abandoned

hazardous waste sites, as well as accidents, spills, and other emergency releases of

pollutants and contaminants into the environment. Through CERCLA, the EPA has the

authority to seek out the accountable parties and assure their cooperation in the necessary

cleanups. Generally, the Potentially Responsible Parties must either perform the cleanup

or reimburse the EPA for its cleanup work. Section 111 of CERCLA, however, authorizes

payments from the Superfund for, inter alia, reimbursement of private parties for response

costs. More specifically, section 111(a)(2) of CERCLA provides for “payment of any

claim for necessary response costs incurred by another person as a result of carrying out”

the National Contingency Plan (the “NCP”), provided that the “costs must be approved

                                             9
under said plan and certified by the responsible Federal official.”        See 42 U.S.C.

§ 9611(a)(2). 4

       While not required by statute, CERCLA’s implementing regulations mandate that a

claimant intending to recover from the Superfund must apply for and obtain approval of

response costs prior to beginning the cleanup activities. See 40 C.F.R. § 307.22(a). A

claim must be “preauthorized by EPA pursuant to § 307.22” and may include only costs

“incurred for activities within the scope of EPA’s preauthorization.” Id. § 307.21(b).

Under the CERCLA regulations, a “preauthorization” is defined as the “EPA’s prior

approval to submit a claim against the [Superfund] for necessary response costs incurred

as a result of carrying out” the NCP. Id. § 307.14. To obtain the EPA’s prior approval, the

regulations state that a claimant must submit an application for preauthorization before

commencing a response action. Id. §§ 307.14, 307.22(a).

       In this situation, August Mack did not seek or obtain an express preauthorization

from the EPA before its cleanup of the BJS Site, by using EPA Form 2075-3 or otherwise.

Nevertheless, August Mack maintains that it is entitled to recover from the Superfund.

August Mack’s position on appeal is that it only needs to demonstrate substantial

compliance with the preauthorization process, and that, in any event, strict compliance was

impossible because EPA Form 2075-3 has been obsolete for more than twenty years. As

       4
         The NCP is the federal government’s blueprint for responding to oil spills and
releases of hazardous substances. The NPL — where the BJS Site was listed in 2000 — is
Appendix B of the NCP.

                                            10
explained below, we agree that it was legal error for the EPA to require strict compliance,

rather than substantial compliance. Thus, the EPA’s decision to apply a strict compliance

standard was an arbitrary and capricious abuse of discretion. 5

                                            A.

       The doctrine of substantial compliance is a tool designed to “assist the court in

determining whether conduct should, in reality, be considered the equivalent of

compliance.” See Peckham v. Gem State Mut., 964 F.2d 1043, 1052 (10th Cir. 1994). It

is “an equitable doctrine designed to avoid hardship in cases where the party does all that

can reasonably be expected of him.” See Sawyer v. Sonoma Cnty., 719 F.2d 1001, 1008

(9th Cir. 1983).

       Notably, the CERCLA regulations incorporate the doctrine of substantial

compliance into an assessment of whether cleanup work on a Superfund site is “consistent

with” the NCP requirements. See 40 C.F.R. § 300.700(c). When a private party seeks to

recover response costs from a Potentially Responsible Party, it must prove that its work

was consistent with the NCP. Broadly speaking, the NCP requires, under the applicable

       5
          August Mack has alternatively requested that it be reimbursed from the Site-
specific funds in the Special Account established under the Consent Decree. According to
August Mack, the EPA should reimburse it from the Special Account because the Consent
Decree directed that the Site-specific funds had to be “used to conduct or finance response
activities at or in connection with the BJS Site.” See Consent Decree 50. Nonetheless, the
Decree provides that “[n]othing in this Consent Decree shall be construed to create any
rights in, or grant any cause of action to, any person not a Party to this Consent Decree.”
Id. at 77. The Decree lists the parties bound by it: Vertellus, CBS, and Exxon. Thus,
nothing in the Decree provides August Mack with the right to recover from the Special
Account.

                                            11
regulations, that such a private party must comply with all rules for worker health and

safety; documentation and cost recovery requirements; identification of needs for response,

removal, or remedial site evaluations; selection of remedies; and operation and

maintenance. See 40 C.F.R. § 300.700(c)(5). The NCP also requires the private party to

provide an opportunity for public comment. Id. § 300.700(c)(6).

       A response action will be deemed consistent with the NCP if “the action, when

evaluated as a whole, is in substantial compliance with the applicable requirements . . . and

results in a CERCLA-quality cleanup.”        See 40 C.F.R. § 300.700(c)(3)(i) (emphasis

added).   The doctrine of substantial compliance thereby ensures that a Potentially

Responsible Party will not escape cost liability because of a private party’s “immaterial or

insubstantial deviations” from NCP requirements. Id. § 300.700(c)(4); see also Ashley II

of Charleston, L.L.C. v. PCS Nitrogen, Inc., 791 F. Supp. 2d 431, 480 (D.S.C. 2011), aff’d,

714 F.3d 161 (4th Cir. 2013).

       Nonetheless, the specific regulation relied on by the EPA in this case, 40 C.F.R.

§ 307.22(a), does not use “substantial compliance” language. Thus, we must first assess

whether it would be appropriate to apply a substantial compliance standard to August

Mack’s Superfund claim. As the Ninth Circuit has explained, “in the context of statutory

prerequisites, the [substantial compliance] doctrine can be applied only where invocation

thereof would not defeat the policies of the underlying statutory provisions.” See Sawyer,

719 F.2d at 1008 (emphasis added). As explained heretofore, there is no preauthorization

requirement in the CERCLA statutory provisions — the preauthorization requirement

relied upon by the EPA was created solely by the EPA itself in writing its regulations.

                                             12
       Even if the substantial compliance doctrine can only be applied when it would not

defeat the policies of the underlying regulatory provisions, the doctrine may still be applied

here. When the EPA promulgated its regulations on the preauthorization process, it

identified four objectives: (1) ensuring appropriate use of the Superfund, (2) ensuring that

response actions do not create environmental hazards; (3) ensuring that response actions

are consistent with the NCP; and (4) ensuring that response actions are accomplished with

the EPA’s approval and are reasonable and necessary. See 54 Fed. Reg 37892-01, at

*37898 (Sept. 13, 1989). We are satisfied that applying the substantial compliance doctrine

would not undermine any of those objectives.

                                             B.

       That we are satisfied that the substantial compliance doctrine can be utilized does

not mean that the doctrine must be applied. An important fact, however, persuades us that

applying a substantial compliance standard is compelled here. That is, the form that the

EPA purports to require from an applicant for Superfund payment — EPA Form 2075-3

— is legally obsolete.

       Black’s Law Dictionary defines “obsolete” as “no longer in general use;

out-of-date.” See Obsolete, Black’s Law Dictionary (11th ed. 2019). Although we have

not definitively spoken on the issue, it is common sense that obsolete forms do not carry

any legal weight. Cf. McGavock v. City of Water Valley, 452 F.3d 423, 427-28 (5th Cir.

2006) (ruling that obsolete regulations are “without effect”).

       There are several reasons that EPA Form 2075-3 — which is found at Appendix A

of 40 C.F.R. § 307.22 — is legally obsolete. First, Form 2075-3 is the same today as it

                                             13
was in 1991. On its face and by its own terms, the Form expired more than twenty-five

years ago, on December 31, 1994. Next, the EPA itself has implicitly declared the form to

be obsolete. In 1997, the EPA’s Office of Information Resources Management published

a “Form Catalog.” The purpose of that Catalog was to identify all administrative and

program-related forms currently used by the Agency, as well as forms declared obsolete

during a survey conducted in mid-1995. The EPA’s Form Catalog does not identify Form

2075-3 as a form the EPA used in 1997; rather, Form 2075-3 was specifically listed as a

form the EPA had “declared obsolete” since September 1, 1995. Lastly, the directions on

the face of Form 2075-3 are outdated. 6

      Put simply, the EPA should not arbitrarily fault August Mack for failing to strictly

comply with the preauthorization process when the EPA itself has declared the required

form to be obsolete. Indeed, because EPA Form 2075-3 is obsolete, August Mack could

not be required to seek preauthorization in the manner specified by the EPA and thus a

substantial compliance standard is wholly appropriate and necessary. The EPA failed to

consider August Mack’s allegations under the applicable substantial compliance standard,

and thus the EPA’s dismissal of August Mack’s claim was an arbitrary and capricious

      6
          A glaring example of the outdated directions on EPA Form 2075-3 is the
instruction that “[w]hen completed this form should be sent to . . . 401 M Street, S.W.,
Washington, D.C. 20460” to the attention of the “Director, Office of Emergency and
Remedial Response.” The Office of Emergency and Remedial Response, however, was
eliminated in 2015 by the EPA as “unnecessary.” See 80 Fed. Reg. 77575-78 (Dec. 15,
2015). Similarly, the Waterside Mall, which had previously housed the EPA at 401 M
Street, S.W., has been demolished and no longer exists.

                                           14
abuse of discretion. See Cooter & Gell v. Hartmarx Corp., 496 U.S. 384, 405 (1990) (“A

district court would necessarily abuse its discretion if it based its ruling on an erroneous

view of the law.”); Hunter v. Earthgrains Co. Bakery, 281 F.3d 144, 150 (4th Cir. 2002)

(“Of course, an error of law . . . is by definition an abuse of discretion.”). 7

                                              IV.

       At bottom, it was legal error for the EPA to require strict compliance with its

preauthorization process in order for August Mack to prove its Superfund claim. Our

decision today, however, does not mean that August Mack is necessarily entitled to recover

on its claim for response costs. No discovery was conducted, and whether August Mack

substantially complied with the preauthorization process was not assessed in the

administrative proceedings. On remand, the EPA is entitled to dispute and litigate August

Mack’s compliance and any Superfund reimbursement that might be awarded.

       7
           August Mack also contends that EPA Form 2075-3 violates the Paperwork
Reduction Act because it does not display a current OMB control number. The Paperwork
Reduction Act specifies that “no person shall be subject to any penalty for failing
to . . . provide information to any agency if the information collection request
involved . . . does not display a current [OMB] control number.” See United States v.
Hicks, 947 F.2d 1356, 1359 (9th Cir. 1991) (citing 44 U.S.C. § 3512). Nonetheless,
because we determine that Form 2075-3 is obsolete and thus August Mack needed only to
substantially comply with the preauthorization requirement, we need not reach the
Paperwork Reduction Act contention.

                                               15
      Pursuant to the foregoing, we vacate the district court’s judgment and remand for

such other and further proceedings as may be appropriate, including a remand to the EPA

for further administrative proceedings.

                                                         VACATED AND REMANDED

                                          16
DIAZ, Circuit Judge, dissenting:

       My colleagues vacate the district court’s dismissal of August Mack’s amended

complaint and remand for further proceedings, holding that the EPA may not require strict

compliance with its preauthorization process in evaluating August Mack’s claim for

reimbursement from the Superfund. But because August Mack failed to allege even

attempted compliance with the preauthorization requirement, I respectfully dissent.

       The issue before us is whether the district court incorrectly granted the EPA’s Rule

12(b)(6) motion to dismiss August Mack’s amended complaint for judicial review. We

review a district court’s dismissal of a complaint for failure to state a claim de novo,

viewing the complaint in the light most favorable to the plaintiff and accepting all well-

pleaded factual allegations as true. S.C. Dep’t of Health & Envtl. Control v. Commerce &

Indus. Ins. Co., 372 F.3d 245, 255 (4th Cir. 2004). Relevant here, August Mack challenges

the EPA’s denial of its claim for reimbursement from the Superfund for clean-up work it

performed at a contaminated site. The EPA’s final administrative decision is binding,

conclusive, and may not be overturned unless it constitutes an arbitrary or capricious abuse

of discretion. 42 U.S.C. § 9612(b)(5).

       The EPA denied August Mack’s claim because August Mack didn’t obtain

preauthorization for reimbursement from the Superfund prior to commencing its work.

Pursuant to 40 C.F.R. § 307.22(a), “[n]o person may submit a claim to the [Superfund] for

a response action unless that person notifies the Administrator of [the] EPA or his designee

prior to taking such response action and receives preauthorization by [the] EPA.” See also

40 C.F.R. § 307.11(a) (“Only response actions that [the] EPA has preauthorized are eligible

                                            17
for reimbursement through the claims process”). The applicable regulations also provide

that “[the] EPA shall review each preauthorization application and will notify the applicant

of the decision to grant or deny preauthorization. Decisions to grant preauthorization will

be memorialized in a PDD,” or Preauthorization Decision Document.                40 C.F.R.

§ 307.23(a). “If [the] EPA grants preauthorization, the applicant may begin the approved

response action subject to the terms and conditions contained in the PDD.” 40 C.F.R.

§ 307.23(e). *

       August Mack appealed the EPA’s denial and received an administrative hearing

before an ALJ. Though it’s undisputed that August Mack didn’t apply for preauthorization

until years after completing its work, it argued that the doctrine of substantial compliance

should apply to the preauthorization process because the EPA has made strict compliance

impossible by failing to update its obsolete form application. The ALJ rejected this

argument and held that August Mack’s failure to obtain preauthorization rendered it

ineligible for reimbursement from the Superfund. My colleagues hold that it was legal

error for the ALJ to require strict compliance and remand for further proceedings to

determine whether August Mack substantially complied.

       It may well be appropriate to apply the doctrine of substantial compliance in

reviewing whether a party has satisfied the regulatory requirement of seeking (and

       *
         The only appellate court to address the preauthorization requirement is the D.C.
Circuit, which upheld it as an appropriate exercise of EPA’s authority under the
Comprehensive Environmental Response, Compensation, and Liability Act. See Ohio v.
EPA, 838 F.2d 1325 (D.C. Cir. 1988).

                                            18
receiving) preauthorization from the EPA prior to commencing work on a response action

for which the party hopes to be reimbursed from the Superfund. I also accept that the

EPA’s decades-long failure to update its obsolete form application weighs in favor of

affording a party some leeway when reviewing whether efforts made to comply with the

requirement were sufficient.

       But the problem in this case is that August Mack didn’t allege any facts that suggest

it even attempted to comply, much less substantially complied, with the requirement. As

the ALJ and the district court recognized, August Mack concedes that it didn’t seek

preauthorization for reimbursement from the Superfund because it expected to receive

payment for its work from either Vertellus (who was contractually obligated to pay August

Mack) or the site-specific fund. Indeed, the district court didn’t fault August Mack for

failing to strictly comply with the EPA’s process; rather, it reasoned that August Mack’s

“substantial compliance argument has no merit because this is not a mere technical

oversight on [August Mack]’s behalf; it is an outright failure to attempt to comply with

clear federal regulations.” J.A. 312.

       The only facts alleged in August Mack’s amended complaint that even touch on

substantial compliance with the preauthorization requirement are that, in performing under

the Consent Decree, Vertellus selected August Mack “as the ‘Supervising Contractor’ to

perform the EPA-approved cleanup work,” the “EPA specifically approved [August Mack]

as the ‘Supervising Contractor,’” and the EPA “supervised all of the work [August Mack]

performed and all of the costs [it] incurred.” J.A. 9. But, as the EPA points out, these

allegations can’t support a finding of substantial compliance with the preauthorization

                                            19
requirement because 40 C.F.R. § 307.22(j) expressly provides that “the terms, provisions,

or requirements of a court judgment, Consent Decree, administrative order (whether

unilateral or on consent), or any other consensual agreement with EPA requiring a response

action do not constitute preauthorization to present a claim to the [Superfund].” (emphasis

added). Thus, because it’s “irrelevant that [the] EPA authorized and supervised [August

Mack]’s work,” J.A. 312, the district court properly dismissed August Mack’s amended

complaint for failure to state a claim. See Bell Atlantic Corp. v. Twombly, 550 U.S. 544,

570 (2007) (requiring dismissal when a plaintiff fails to plead “enough facts to state a claim

to relief that is plausible on its face.”).

       In short, even assuming the doctrine of substantial compliance applies to the

preauthorization requirement, August Mack’s amended complaint falls far short of alleging

substantial compliance here. And August Mack’s concession that it didn’t even attempt to

comply with the preauthorization requirement makes it inevitable that August Mack will

fare no better on remand.

       Because I would affirm the district court’s dismissal of August Mack’s amended

complaint, I respectfully dissent.

                                              20