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The Clean Water Act Citizen Suit Shakedown

Posted by Nicole Liotine | Jun 04, 2013 | 0 Comments

By Blair W. Will –

In my practice as a land-use and natural resources attorney I have been called upon to defend business clients sued by environmental groups in a Clean Water Act “citizen-suit”.  I do not object to legal actions directed at entities that are engaged in clear violations of environmental laws.   However, in the last 3-5 years the majority of the defendants targeted in Clean Water Act citizen suits in Northern California are small businesses and the allegations are often based on violations of pollutant constituent standards that are ill defined in the defendants' Clean Water Act permits.  Because these lawsuits are relatively technical and therefore costly to defend, most defendants elect to settle rather than litigate.  Settlements with citizen-plaintiffs range from $75,000 to $250,000.  These amounts might be absorbed by large corporations, but are often sufficient to force small businesses to close their doors.  The net outcome is that the defendants pay settlements that significantly impact their continuing economic viablility, while the benefit to the public through reduction of water pollution is dubious.  As described in this article, ultimately the main beneficiaries of this system are the citizen-plaintiffs, who are almost always environmental groups and their eco-lawyers, hence my description of citizen-suit actions as “shakedowns”.

Background:  Clean Water Act Permitting

The purpose of the Clean Water Act (CWA) is to prevent or reduce water pollution.  The CWA's fundamental compliance mechanism is the National Pollution Discharge Elimination System (NPDES) permit.  No entity can discharge a pollutant to “waters of the United States” except pursuant to conditions set forth in an NPDES permit.

NPDES permits may be issued to specific dischargers on an individual basis.  They are also issued on an activity-wide basis, known as Nationwide Permits (NWP).  NWPs impose a certain set of requirements and conditions on discharges associated with specific activities (e.g., for construction activities; for industrial facilities, and so forth).  A discharger engaged in the specific activity who complies with the terms of the NWP which is applicable to that activity can obtain “coverage” under that NWP.  The discharger notifies the enforcement agency that it will comply with the relevant NWP and therefore be in compliance with the CWA.

Many facilities are required to obtain coverage under an NWP not for discrete “point-source” discharges but for stormwater runoff—either sheet flow or flow channeled into municipal stormwater drains.  NWPs applicable to stormwater runoff require a discharger to implement “best management practices” (BMP) to reduce the level of pollutants in the runoff.  BMPs are categorized as structural (e.g., filtration screens over drains) or non-structural (e.g., employee training).  Every discharging facility must have a Stormwater Pollution Prevention Plan (SWPPP).  Under the SWPPP, the facility is required to do periodic monitoring and sampling of discharged stormwater.  The results of this sampling must be reported to the relevant permitting authority.

Responsibility for enforcing the CWA lies with the US Environmental Protection Agency (EPA).  In most states, however, EPA has delegated primary enforcement authority.[1]  Thus, in California, the CWA is generally administered and enforced by the State Water Resources Control Board (SWRCB) and the regional boards.

Like most federal environmental statutes, the CWA also authorizes “citizen-suits”.  (See, section 505 of the CWA; 33 U.S.C. 1365)  An individual or group may bring a CWA enforcement action if, after serving a 60-Day Notice of Intent to Sue on the EPA administrator, the SWRCB, and the putative defendant , no enforcement action is taken by either the EPA or SWRCB.

Some readers will recall the lawsuit industry spawned by the Americans with Disabilities Act (ADA).  Attorneys would bring dozens of lawsuits against business owners for alleged violations of the ADA and then settle those suits for a few thousand dollars each.  It was a lucrative racket and it worked well because the ADA includes literally hundreds of rules and standards, making it virtually impossible for businesses to comply.  In addition, at least initially, businesses and lawmakers were loath to criticize the ADA lawsuits because upholding the rights of the handicapped is viewed by broader society as a good cause—and of course it is.  However, the number of ADA lawsuits quickly got to the point that the Act was clearly being misused.  At that point legislators took measures to revise the ADA to make its use as a shakedown mechanism more difficult.

Like the ADA, the CWA citizen suit has evolved from being an ostensibly good idea—supplementing the government enforcement apparatus to help ensure clean water for all—to a shakedown racket.  The same elements that made the ADA such an effective tool for unscrupulous litigants are all present in the CWA: (1) a statute that is effectively impossible for the regulated community to comply with; (2) low standing requirements for plaintiffs; (3) available recovery of money in the form of in-lieu penalties and; (4) an attorney's fee provision.  In broad terms, here is how it works:

Choose the Defendant

An environmental group, such as the San Francisco Baykeeper or the California Sportfishing Protection Alliance, targets a mid-level business.  This business will be carefully chosen.  It must be a business which is required to maintain CWA permit coverage.  Industrial uses such as waste recycling, auto dismantlers and manufacturing facilities are especially common targets.  The ideal defendant is large enough to have sufficient financial resources to pay a settlement but not so large as to have the wherewithal to mount a significant legal defense.

The environmental group's (“EG”) targeting process incorporates a few steps.  It starts with the EG casing the defendant's facilities, using both aerial photography (such as Google Earth) as well as by sending individuals to the facilities to peer through gates and over perimeter fences.

Obtain the Defendant Facility Reports; Exceedances; Applicable Standards

The EG will access the records relating to the facilities' discharges.  The CWA imposes monitoring and reporting requirements on facilities that are obtaining CWA coverage under a NWP and that information is publicly available (in California) through Water Board databases.

Exceedances of the permit's expressly identified pollution standards/limits may be found in this information.  Even if the facility's discharges have not occasionally exceeded the limits expressly established in the permit[2], the EG will argue that the applicable maximum constituent pollutant imposed by the terms of the NWP are the so-called “EPA Benchmarks”, which are significantly stricter than the state-established standards/limits.

The EG's basic argument is that even though the NWPs don't contain language identifying the EPA Benchmarks as being an applicable standard, the permits contain a catch-all provision, something to the effect of; “discharger must comply with all existing pollution standards”, and that “all existing” includes the Benchmarks.  The point is:  if the Benchmarks are considered to be a “standard”, then violation of the Benchmarks constitutes violation of the NWP terms, even if the Benchmarks are nowhere mentioned in the permit.  The reason the EG wants the Benchmarks to be an “applicable standard” is that the Benchmarks are very difficult to comply with, even if using the best available pollution control technology.

Serve the 60-Day Notice

The EG will serve the required 60-Day Notice.  Federal and state regulators are overburdened with more significant CWA matters, so there is effectively zero likelihood that they will take enforcement action within the 60-Day window.

Defendant's First Steps

The 60-Day Notice served on the defendant identifies all the CWA violations that the EG is alleging.  The defendant therefore has notice as to the bases of the claims.  The defendant's first course of action should be an internal investigation to ascertain how much validity there is to the EG's lawsuit.  If exceedances of an applicable water quality standard (not the EPA Benchmarks) is noted in the monitoring reports there is nothing much to be done about that now.  Hopefully there isn't a demonstrable pattern of willful noncompliance.

More important at this stage is to get the books in order.  Ensure that the permit's required documentation is available.  Particular things to look for are records of employee training, logs of scheduled yard maintenance, use of best management practices (particularly during storm events), and so forth.  This review process is also helpful because it forces the defendant to do some basic organization.  I've seen many permit-required documents shoved in random manila folders, and SWPPPs split up and stored in various binders at different locations.  This disorganization looks bad when it comes time to demonstrate a good faith attempt to comply with permit terms.

Defense Strategies

There are basically three defense strategies.  First, the defendant can run to the relevant government regulator and request an enforcement action.  A pending action will stay the 60-Day Notice clock.  However, calling in an enforcement action on yourself is obviously a dicey option, fraught with risk.  It could result in a costly enforcement action!  Moreover, this tactic probably won't work because it's unlikely to result in any government action actually being taken.  The regulators are already pretty busy.  Although the defendant views the EG's allegations as serious and potentially enormously costly, for the regulators these actions are small potatoes.

Second, the defendant can decide at the outset to dig in, be uncooperative with the EG, and prepare to litigate every inch of the coming process.  That is a long and expensive road.  It also has a highly uncertain outcome.  Because the exceedances of the limits in the permit are typically self-reported, attacking the substance of the EG's allegations won't work.  Arguing applicable standards (a.k.a., whether the EPA Benchmarks are really a standard), or whether utilizing the best available control technology should be de facto compliance with permit terms, are in my view intriguing contentions that might ultimately be validated by the right court.  But such a case will need to get to the appellate level before those issues will be fully adjudicated.  I hope someday to represent a well-funded client who is able to underwrite the litigation necessary to obtain that appellate review.  In the meantime, zealous litigation is rarely the most cost-effective choice for the average defendant.

And that brings us to the third, and most common, strategy: settle with the EG as quickly (and hopefully cheaply) as possible.

Settling With The Citizen-Plaintiff

The EG will contact the defendant to ascertain whether settlement is a workable solution.  By that time, the defendant will likely have consulted with counsel and been advised of the very short list of options, and will agree to entertain settlement.

The EG will then ask for a site visit to the facility (remember, at this point the EG's probably only been able to look at the facility from the street).  The EG will also ask for all permit-related documents.  After a walk-through at the facility (controlled, with attorneys present) and a few weeks to review those documents, the EG will present a draft settlement agreement.

The EGs generally have a quasi-standardized settlement agreement, and follow a predictable game plan.  Defendants are typically interested in getting to the bottom line—what is this going to cost?  At least at the beginning of settlement negotiations, the EG won't divulge any hard dollar numbers.

The Settlement Agreement

The first version of the settlement agreement (a.k.a. consent decree) will focus on “best management practices” and other pollution control technologies that the EG wants the defendant to implement.  Occasionally these technologies can be expensive, but usually they are not.  When reviewing the first draft of the agreement, the defendant may, with relief, conclude that a few new swaddles around storm drains, some updated employee training and twice-daily sweeping up will be sufficient concessions.  Not likely. Remember this is a process. The version of the settlement agreement with the dollar numbers in it is next.

Legal costs and attorney's fees are authorized in the statute.  In my experience, for a docile defendant who didn't attempt to litigate, these costs and fees will be in the $50,000-$200,000 range, depending on the EG's assessment of the depth of the defendant's pockets.

There will also be compliance fees—the citizen-plaintiff will require that it have oversight of the defendant's compliance efforts, including the defendant's Action Plan to achieve compliance.  The costs of overseeing the defendant's activities, which the EG will bill to defendant, usually total $5000-$20,000 per year, for each year of the term of the consent decree.

The EG will require a “mitigation payment” which is theoretically to compensate for all of the damage the runoff from the defendant's facility caused to the watershed.  The mitigation payment will range from $50,000 – $250,000; again the range depends on the perceived ability of the defendant to pay.

The EG will demand that the Mitigation Payment be to a grant-making entity.  The Rose Foundation for Communities and the Environment is a favorite choice of hyper-litigious EGs like the California Sportfishing Protection Alliance and San Francisco Baykeeper.    In 2012, the Rose Foundation made nearly $200,000 in grants to CalSPA and $85,000 to Baykeeper. Thus it is a circle; the Environmental Group  sues Industrial Defendant and the settlement requires Industrial Defendant to contribute $X to the Rose Foundation and then the Rose Foundation funnels those dollars back to the EG in the form of grants.

Finally, the settlement agreement will typically give the EG broad authority to inspect and independently monitor the defendant's permit-related activities.  This will include the right to access facilities and monitoring files.

Do these kinds of settlements result in a benefit to the cause of reducing water pollution?  That goal is, after all, the whole point of the CWA.  In cases of excessive discharges, or a clear pattern of non-compliance, significant settlements might pressure a violating discharger into compliance, which reduces net pollution.  But most of those large-scale violators are policed by the government enforcement agencies.  The net reduction in water pollution which results from compelling a small business with 2-3 storm drains in its parking lot to sweep the parking lot before each forecast rainstorm is comparatively of extremely minimal benefit.  The real reason these lawsuits are popular is the money “transferred” from the defendant business to the environmental group plaintiff.

Conclusion

The CWA citizen-suit model is relatively straightforward; find a defendant, review the defendant's publicly available discharge monitoring reports, file a 60-day notice and bring a lawsuit alleging permit violations based on exceedance of EPA thresholds which were not ever intended to be a “standard” applicable to the defendant's permit.  These lawsuits are very time-consuming and costly to defend and most defendants elect to settle rather than litigate.  Dollars paid through those settlements are then used to fund additional litigation, and the cycle continues.

I've often said that in California it is not the imposition of numerous environmental laws that is a significant force driving businesses away from the state, but uncertainty regarding potential environmental liability, and the related costs. To reduce uncertainty among the regulated community, I would like to see legislation that reduces the incidence of CWA citizen-suit litigation through clarification as to the requirements imposed on dischargers under the NWP permits.  For example, certain states publish a list of BMP (best management practices) and pollution control technologies.  In those states, a permitee who implements the listed BMPs and control technologies is deemed to be in compliance with the permit.  Alternatively, the NWPs could be revised to clearly state which standards will be applied—and that EPA Benchmarks are not a state water quality standard.

Alas, here in California developments are moving in the other direction.  Our left-of-center legislature, and the water boards, continues to punish small business.  Case in point, the most recent draft of the updated Industrial Stormwater Permit (which is currently moving through the rule-making / public comment stage at a glacial pace) indicates that the new permit will expressly identify the EPA Benchmarks as a water quality standard.  In effect, the water board is adopting the principal argument forwarded by the environmental lobby, without any environmental groups having to actually litigate the argument in front of an appellate court.  Accordingly, my prediction is that the number of small businesses served with 60-day notices, and the number of businesses forced to shut down because they cannot pay the settlement costs, will only increase.


[1] EPA directly administers the NPDES program in just four states; Alaska, Idaho, New Hampshire and New Mexico.

[2] All NWPs prohibit stormwater discharges that cause or contribute to a violation of a water quality standard. However, which water quality standards apply varies.  NWPs do not specify the numeric limits that would be applicable to individual facilities with individual permits. Rather, facilities operating under NWPs must comply with the various water quality criteria and standards that apply to the receiving water body.  In California, those standards typically include baseline criteria established by the State Water Resources Control Board as considered necessary to protect aquatic species and human health; the California Toxics Rule; and Total Maximum Daily Loads (TMDLs), which are set for individual water bodies that are “impaired” or consistently exceed water quality criteria.

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