Court Opinion

ID: 3048039
Source: CourtListenerOpinion
Date Created: 2015-10-13 23:23:10.418307+00
Date Added: 2024-06-11T12:46:39.357807
License: Public Domain

United States Court of Appeals
                           FOR THE EIGHTH CIRCUIT
                                   ___________

                                   No. 08-2819
                                   ___________

Service Oil, Inc.,                      *
                                        *
             Petitioner,                *
                                        * Petition for Review of an
      v.                                * Order of the Environmental
                                        * Appeals Board.
United States Environmental             *
Protection Agency,                      *
                                        *
             Respondent.                *
                                   ___________

                              Submitted: May 13, 2009
                                 Filed: December 28, 2009
                                  ___________

Before LOKEN, Chief Judge, BYE, Circuit Judge, and MILLER,* District Judge.
                              ___________

LOKEN, Chief Judge.

       Congress substantially amended the Clean Water Act in the Water Pollution
Control Act Amendments of 1972, directing the Environmental Protection Agency
(EPA) to adopt effluent limits for the discharge of various pollutants, and providing
that “it is illegal for anyone to discharge pollutants into the Nation’s waters except
pursuant to a permit” that incorporates those effluent limits. City of Milwaukee v.
Illinois & Mich., 451 U.S. 304, 311-12 (1981); see generally S. Rep. No. 92-414

      *
        The HONORABLE BRIAN STACY MILLER, United States District Judge
for the Eastern District of Arkansas, sitting by designation.
(1972), reproduced in 1972 U.S.C.C.A.N. 3668, 3675-77, 3708-39. The Water
Quality Act of 1987 expanded this regime by directing EPA to require permits for
storm water discharges associated with industrial activity. See 33 U.S.C.
§ 1342(p)(2)-(4). In this administrative enforcement proceeding, EPA imposed a
substantial monetary penalty on Service Oil, Inc., the owner of a construction site that
did not timely obtain a storm water discharge permit. EPA based the amount of the
penalty not on unlawful discharges, but on Service Oil’s failure to comply with the
agency’s permit application regulations. Concluding that this is an expansion of
EPA’s remedial power not authorized by the governing statutes, we reverse and
remand for redetermination of the penalty.

                                            I.

       The Clean Water Act prohibits the discharge of any pollutant into navigable
waters from a point source except in compliance with an NPDES1 permit issued by
EPA or by an authorized state agency. See 33 U.S.C. §§ 1311(a), 1342(a), 1362(12);
Nat’l Wildlife Fed’n v. Consumers Power Co., 862 F.2d 580, 583 (6th Cir. 1988).
EPA’s regulations provide that one intending to discharge “storm water associated
with industrial activity” must apply for an individual NPDES permit, or for coverage
under a “promulgated storm water general permit.” 40 C.F.R. § 122.26(c)(1).
“Industrial activity” includes “[c]onstruction activity . . . except operations that result
in the disturbance of less than five acres of total land area.” 40 C.F.R.
§ 122.26(b)(14)(x). EPA’s permit regulations provide that operators of facilities
described in § 122.26(b)(14)(x) shall submit permit applications at least ninety days
before the start of construction, or when required by an applicable general permit. 40

      1
       NPDES is an acronym for National Pollution Discharge Elimination System.

                                           -2-
C.F.R. §§ 122.21(c)(1), 122.26(c). The North Dakota Department of Health, an
authorized state agency, has issued a general permit applying to new and existing
discharges of “storm water associated with construction activity.” The general permit
provides that, to obtain coverage, an operator “shall submit” a Notice of Intent and a
Stormwater Pollution Prevention Plan thirty days prior to the start of construction.

       In April 2002, Service Oil began construction of a Stamart Travel Plaza on
more than five acres of land in Fargo, North Dakota. When construction began, the
site became a “point source.” See 33 U.S.C. § 1362(14). A point source lacking a
permit is subject to the core Clean Water Act prohibition -- “the discharge of any
pollutant by any person shall be unlawful.” 33 U.S.C. § 1311(a). The parties
stipulated that storm water contains “pollutants.” See 33 U.S.C. § 1362(6).
“Discharge of a pollutant” is “any addition of any pollutant to navigable waters from
any point source.” 33 U.S.C. § 1362(12). The site’s storm water discharges flow
through Fargo’s storm sewer system into the Red River of the North, part of the
navigable waters of the United States. See 33 U.S.C. § 1362(7); 40 C.F.R. § 122.2.

        In October 2002, EPA and state Department of Health officials inspected
thirteen construction sites in the Fargo area. Twelve, including Service Oil’s Stamart
site, lacked an NPDES permit or coverage under the Department of Health’s general
permit. Service Oil submitted a Notice of Intent to the Department and obtained
coverage under its general permit. State officials closed their review in June 2004
without further action. EPA continued its review, ultimately concluding that Service
Oil had not fully complied with the NPDES permit because it failed to conduct site
inspections every seven days and after heavy storms and to record inspection results
in a Site Inspection Record. This administrative enforcement action followed.

      The Clean Water Act includes a variety of enforcement provisions found
primarily in 33 U.S.C. § 1319. See generally Tull v. United States, 481 U.S. 412
(1987). Section 1319(g)(1) authorizes EPA to assess a civil monetary penalty if it

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“finds that any person has violated [33 U.S.C. §§] 1311, 1312, 1316, 1317, 1318,
1328, or 1345,” or has violated a condition in an NPDES permit issued under § 1342.
In this case, EPA’s Complaint sought an $80,000 administrative penalty, alleging that
Service Oil violated 33 U.S.C. §§ 1311(a) and 1342(p), and 40 C.F.R. § 122.26(c) by
not obtaining a permit prior to commencing construction (Count 1), and by failing to
comply with the permit’s terms once issued (Count 2).

       After Service Oil answered, EPA moved for accelerated decision (summary
judgment). The ALJ denied summary judgment on Count 1, concluding that the
failure to obtain an NPDES permit does not violate § 1311(a) absent proof of a
discharge, and Service Oil disputed whether any discharge occurred after construction
began but before it obtained coverage under the Department of Health’s general
permit. The ALJ noted that the regulations require a new storm water discharger to
apply for a permit before construction, and therefore a statutory provision listed in 33
U.S.C. § 1319(g)(1) other than § 1311 “may provide a statutory basis for an
enforcement action for failure to apply for a storm water permit as required by 40
C.F.R. § 122.26(c).” The ALJ granted summary judgment on Count 2 -- it was
undisputed that Service Oil violated conditions of the general permit after obtaining
coverage -- but denied summary judgment on the question of penalty.

       EPA then amended Count 1 to allege that Service Oil’s failure to apply for a
storm water discharge permit before commencing construction violated 33 U.S.C.
§ 1318 and 40 C.F.R. § 122.21. Service Oil opposed the amendment, arguing that
§ 1318 does not apply to the agency’s permit application regulations, thereby
preserving this issue of law for judicial review. After a hearing, the ALJ concluded
that § 1318’s record-keeping requirements encompass agency regulations requiring
the pre-construction submission of a completed permit application. As a violation of
§ 1318 is enforceable under § 1319(g)(1), the ALJ concluded that Service Oil is liable
on Count 1 regardless of whether EPA proved that a discharge occurred prior to
obtaining coverage under the general permit. After a lengthy review of conflicting

                                          -4-
expert testimony, the ALJ further found that “dirt, sediment and concrete, did flow
off-site during construction” and “would have reached the Red River.” Therefore,
Service Oil also violated § 1311(a) by discharging pollutants without a permit.

       Applying the penalty factors mandated by 33 U.S.C. § 1319(g)(3),2 the ALJ
assessed a $35,640 penalty for all violations. The ALJ began the penalty analysis by
assessing Service Oil for the “rather nominal economic benefit” of $2700 it obtained
from non-compliance (delayed and avoided compliance costs). The ALJ then
increased the penalty to $27,000 based on Service Oil’s “complete failure to apply for
and obtain a NPDES permit prior to starting construction.” The ALJ increased the
$27,000 penalty by ten percent because Service Oil, “albeit however slightly, had
certainly caused the Red River to become more impaired,” and increased the penalty
another twenty percent to reflect Service Oil’s culpability. On appeal, the
Environmental Appeals Board (EAB) affirmed the ALJ’s § 1318 analysis and the
penalty assessed, specifically upholding a ten-fold increase in the base economic
benefit penalty because of Service Oil’s “complete failure to apply for its storm water
permit prior to starting construction.” In re Service Oil, Inc., CWA Appeal No. 07-02,
Final Decision & Order at pp. 34-35 (EAB July 23, 2008).

        Service Oil petitions for review of the EAB’s final agency action, renewing its
argument that failure to apply for an NPDES permit prior to construction in the time
prescribed by EPA’s permit regulations does not violate § 1318 and therefore cannot
be the basis of a civil monetary penalty under § 1319(g)(1). Service Oil concedes that
it is subject to an administrative penalty for its minimal storm water discharges prior

      2
       § 1319(g)(3) provides in relevant part: “In determining the amount of any
penalty assessed under this subsection, the Administrator . . . shall take into account
the nature, circumstances, extent and gravity of the violation, or violations, and, with
respect to the violator, ability to pay, any prior history of such violations, the degree
of culpability, economic benefit or savings (if any) resulting from the violation, and
such other matters as justice may require.”

                                          -5-
to obtaining coverage under the general permit, and for failing to conduct required site
inspections after it obtained permit coverage. We review the penalty assessment for
abuse of discretion. See 33 U.S.C. § 1319(g)(8). The amount of the penalty assessed,
which must be determined in accordance with § 1319(g)(3), was based primarily on
the failure to apply for a permit prior to starting construction, as required by the EPA
regulations. If that failure was not a violation of § 1318, triggering liability for an
administrative monetary penalty under § 1319(g)(1), the penalty was based upon an
impermissible factor and must be reversed. See, e.g., Kelly v. EPA, 203 F.3d 519, 523
(7th Cir. 2000) (“An abuse of discretion by an agency involves . . . a decision that
rests on an impermissible basis.”). We review EPA’s interpretation of § 1318 under
the familiar standards of Chevron U.S.A. Inc. v. Natural Resources Defense Council,
467 U.S. 837 (1984).

                                          II.

       The Clean Water Act prohibits discharges without a permit. 33 U.S.C.
§ 1311(a). NPDES permits prescribe effluent limitations and pretreatment standards
that will apply to the permit-holder’s discharges. See §§ 1312, 1317, 1342(a)(1).
EPA and state permitting authorities obviously need detailed data from a new point
source applicant in order to fashion and issue an appropriate permit before discharges
commence. EPA’s regulations governing permit applications serve this purpose. See
Natural Resources Defense Council v. E.P.A., 822 F.2d 104, 111 (D.C. Cir. 1987)
(“the comprehensive NPDES regulations are pivotal to implementation of the Clean
Water Act’s permit scheme”).

      The 1972 Clean Water Act amendments authorized EPA to “prescribe such
regulations as are necessary to carry out [its] functions under this Act.” Pub. L. 92-
500, § 501(a), 86 Stat. at 885, codified at 33 U.S.C. § 1361(a). Indeed, Congress
included this broad rule-making authority in the very first federal water pollution
control act, enacted in 1948. See Pub. L. 845, ch. 758, § 9(d), 62 Stat. 1155, 1160

                                          -6-
(1948). The 1987 Water Quality Act included specific authority to issue regulations
governing industrial stormwater discharge permits. Pub. L. 100-4, § 405, 101 Stat.
7, 69, codified at 33 U.S.C. § 1342(p)(6).

       EPA first issued regulations specifying the timing and content of NPDES
permit applications in 1972 and 1973. The agency issued substantially revised
regulations in 1979 and 1983, and added regulations governing applications for storm
water discharge permits in 1990. As one would expect, each set of regulations has
provided that permit applications for a proposed point source must be submitted prior
to the initial discharge.3 EPA has consistently cited the entire statute as its authority
for these regulations See 44 Fed. Reg. at 32,899; 55 Fed. Reg. at 48,062 (citing “Clean
Water Act, 33 U.S.C. 1251 et seq.”). Regulations governing the timing and content
of permit applications are clearly within the broad rule-making authority delegated by
33 U.S.C. § 1361(a).

      The issue in this case is one of remedial power, not regulation validity.
Congress in § 1319(g)(1) granted EPA limited authority to assess administrative
monetary penalties for violations of specific statutory provisions related to the core
prohibition against discharging without a permit, or contrary to the terms of a permit.
The agency may not impose those penalties for violations of other Clean Water Act
regulatory requirements, though it may be authorized to take other enforcement action
by other subsections of § 1319. One of the specified statutes is § 1318(a), which
authorizes the EPA Administrator, “when required to carry out the objective of this
chapter,” to “require the owner or operator of any point source” to (i) establish and
maintain records, (ii) make reports, (iii) install and use monitoring equipment, (iv)

      3
       See 37 Fed. Reg. 28,390, 28,393, § 124.21(b) (Dec. 2, 1972) (requirements for
state permit programs); 38 Fed. Reg. 13,528, 13,531, § 125.12(c) (May 22, 1973)
(EPA-issued permit requirements); 44 Fed. Reg. 32,854, 32,903, § 122.10(c) (Jun. 7,
1979); 48 Fed. Reg. 14,145, 14,159, § 122.21(c) (Apr. 1, 1983); 55 Fed. Reg. 47,990,
48,062, § 122.21(c) (Nov. 16, 1990).

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sample effluents, and (v) “provide such other information as he may reasonably
require.” It also authorizes EPA representatives to enter any premises where an
effluent source is located or records are kept, and to copy records, inspect monitoring
equipment, and sample effluents. § 1318(a)(A) and (B). The Clean Water Act
provides that NPDES permits must include comparable inspection, monitoring, entry,
and reporting requirements. See 33 U.S.C. § 1342(b)(2)(B). These provisions were
based upon a finding by Congress that the prior Federal water pollution control
program “suffers from a lack of information concerning dischargers, amounts and
kinds of pollution, abatement measures taken, and compliance.” S. Rep. No. 92-414,
1972 U.S.C.C.A.N. at 3673.

       Though § 1318(a) is broadly worded, it is clearly aimed at ensuring proper and
effective recording, monitoring, and sampling of discharges of pollution. See
generally NRDC, 822 F.2d at 118-21. Much of the information required of permit
applicants would fall within its literal terms. See United States v. Allegheny Ludlum
Corp., 366 F.3d 164, 175 (3d Cir. 2004). But the issue here is whether the failure to
submit a timely permit application is a violation of § 1318(a). The regulations
require that a person “proposing a new discharge,” such as Service Oil in this case,
“shall submit an application . . . before the date on which the discharge is to
commence.” 40 C.F.R. §§ 1221(c)(1), 122.26(c). Failure to comply with that
requirement cannot be a violation of § 1318(a) because that statute’s record-keeping
requirements are expressly limited to “the owner or operator of any point source.”
Before any discharge, there is no point source. Thus, the obvious authority for EPA’s
permit application regulations was its general rule-making authority under § 1361(a),
not its authority in § 1318 to require record-keeping by existing point sources. The
plain meaning of § 1318(a) is controlling and resolves the issue. See Chevron, 467
U.S. at 842-43. “We consider the agency’s interpretation only after finding that [the]
statute is silent or ambiguous on the question at issue.” In re Lyon County Landfill,
406 F.3d 981, 984 (8th Cir. 2005).

                                         -8-
        The Clean Water Act contains other provisions confirming that the agency’s
authority to assess monetary penalties by administrative proceeding is limited to
unlawful discharges of pollutants. Permits for storm water discharges associated with
construction activity “shall meet all applicable provisions of this section and section
1311.” 33 U.S.C. § 1342(p)(3)(A). Section 1311 prohibits discharges “[e]xcept in
compliance with this section and sections 1312, 1316, 1317, 1328, 1342, and 1344 of
this title.” There is no cross reference to § 1318 in § 1311, only to § 1342. EPA
cannot assess monetary penalties under § 1319(g) for a violation of § 1342 until a
permit issues. As the Second Circuit held in invalidating a portion of EPA’s
regulations governing concentrated animal feeding operations, “unless there is a
‘discharge of any pollutant,’ there is no violation of the Act, and point sources are,
accordingly, neither statutorily obligated to comply with EPA regulations for point
source discharges, nor are they statutorily obligated to seek or obtain an NPDES
permit.” Waterkeeper Alliance, Inc. v. E.P.A., 399 F.3d 486, 504 (2d Cir. 2005).
While acknowledging “the policy considerations underlying the EPA’s approach,” the
court concluded that “it contravenes the regulatory scheme enacted by Congress; the
Clean Water Act gives the EPA jurisdiction to regulate and control only actual
discharges -- not potential discharges, and certainly not point sources themselves.”
Id. at 505 (emphasis in original). Accord NRDC, 822 F.2d at 128 n.24 (“The Act does
not prohibit construction of a new source without a permit . . . . The Act only prohibits
new sources from discharging pollutants without a permit, 33 U.S.C. § 1311(a), or in
violation of existing NSPS standards, id. § 1316(e).”) The same limitations apply in
this case.

       Our conclusion that EPA lacks statutory authority to assess administrative
penalties for failure to submit a timely permit application does not mean, as the EAB
posited, that the agency must either guess the identities of potential new point sources,
or allow unpermitted discharges to ensue. Prudent builders know that permits do not
issue overnight and that storm water discharges can happen any time after the start of
construction makes the site a point source. They will apply and obtain permits before

                                          -9-
starting construction to avoid penalties for unlawful discharge that may prove to be
severe. That is the regulatory regime Congress crafted. By contrast, under the EAB’s
interpretation of § 1318(a), a person about to commence construction could apply to
EPA for a storm water discharge permit less than the ninety days “before the date on
which construction is to commence” prescribed in 40 C.F.R. § 122.21(c)(1); obtain
the permit before construction commences and any discharge occurs; and still face a
costly administrative enforcement proceeding and potential monetary penalties for
failing to comply with the regulation. The statute is to the contrary.

       The decision of the EAB based the amount of monetary penalty assessed
primarily on Service Oil’s “complete failure to apply for its storm water permit prior
to starting construction.” As a violation of the permit application regulations is not
within the purview of 33 U.S.C. § 1319(g)(1)(A), this was a statutorily impermissible
factor. Accordingly, we grant the petition for review, vacate the order assessing a
civil penalty of $35,640, and remand to the agency for redetermination of the amount
of the penalty in accordance with § 1319(g)(3) and this opinion.
                        ______________________________

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