Environmental Penalties: When Will They Stop Growing?

In recent years, we have seen a general trend of more severe penalties for environmental violations at the state and federal levels.  Both the Pennsylvania Department of Environmental Protection (PADEP) and the U.S. Environmental Protection Agency (USEPA) have significantly increased penalties in environmental cases involving serious harm and/or large corporations.

In the BP Horizon case, BP ultimately paid in excess of $5.5 billion in civil penalties.  In the same incident, a non-operating business partner (Anadarko Petroleum) paid more than $150 million in civil penalties.  In North Carolina, Duke Power paid approximately $75 million in civil penalties associated with a coal ash impoundment release into a local river.

Commonwealth Cases

The same trend is happening in Pennsylvania with numerous multimillion-dollar penalties imposed by the PADEP.  To date, most of the largest penalties have been imposed against operators in the oil and gas industry.  In addition to creating an apprehensive business climate generally, the pursuit of larger civil penalties also has led to some aggressive agency interpretation of existing laws and penalty provisions.  The clearest example is the recent application of civil penalties for "ongoing discharge" in violation of Section 301, 307(a) and 401 of the Pennsylvania Clean Streams Law (CSL).

In several instances, PADEP has actively taken the position that civil penalties may be assessed for the passive migration of contaminants into the environment after an initial discharge from the impoundment, tank, pipeline or source container into the environment has ended, and/or that each day the contaminants remain in the subsurface soil and passively enter groundwater and/or surface water constitutes an "ongoing or continuing" violation.

In a series of cases between EQT Production Company and PADEP, the two sides are battling over the legality of PADEP's position.  In May 2012, EQT Production notified PADEP that a lined underground impoundment, containing well drilling wastewater, was leaking into the subsurface.  Twelve days later, EQT had completely emptied the impoundment of such water and sludge.  EQT then entered into the formal Act 2/Land Recycling Act voluntary cleanup process and began remediating the affected soil and groundwater.  PADEP proposed settling the matter in May 2014 for a civil penalty of $1.27 million, including approximately $900,000 for alleged continuing violations under the Clean Streams law.

EQT declined to settle and convinced the Pennsylvania Supreme Court that it is entitled to immediate review of the legality of PADEP's interpretation of the law by the Pennsylvania Commonwealth Court.  Concurrently, in October 2014, PADEP filed a Complaint for Civil Penalties against EQT with the Pennsylvania Environmental Hearing Board (EHB), seeking more than $4.5 million in penalties plus ongoing penalties of up to $10,000 per day on a continuing basis.

Lessons Learned

The clear message to take away from all of these cases is that the government agencies are seeking larger penalties for environmental violations.  As a result, permittees must exercise more diligence as the stakes are rising.  In addition, permittees must be careful about just settling and paying for alleged violations where there may be a legitimate legal defense as repeat violations are consistently identified as a basis for large penalties.