Recent Case Law Clarifies Ways Third Parties May Participate In Envionmental Permitting Decisions

Recent state and federal case law has clarified how third parties may participate in and influence permitting. And, the case law shows how courts' deference to agency determination can be both a shield to protect and a sword to threaten permit applicants.

I. Limited Third-Party Right To Adjudicatory Hearings

A public notice and comment period is required prior to the issuance of most environmental permits. During that period, third-party objectors have the opportunity to provide comments to the permitting agency detailing the bases for any objections. Additionally, if the permit applicant seeks an adjudicatory hearing, then third-party objectors generally may intervene in the adjudicatory hearing. If, however, no adjudicatory hearing is requested, then third parties have limited rights to obtain an adjudicatory hearing. On January 11, 2006, the New Jersey Supreme Court issued two companion decisions that clarify those limited rights. See IMO Freshwater Wetlands Statewide General Permits (A-115-04), and In re NJPDES Permit No. NJ0025241 (A-116-04).

In the Freshwater Wetlands decision, neighboring property owners sought to challenge the issuance of a general permit to fill isolated wetlands. The neighbors alleged concern regarding potential flooding of their properties caused by filling of the wetlands. They requested an adjudicatory hearing to prove the increased flooding risk. The New Jersey Department of Environmental Protection (NJDEP) denied their request, and they appealed to the Appellate Division of the New Jersey Superior Court. That court affirmed the NJDEP's decision, and the neighbors appealed to the New Jersey Supreme Court.

The Supreme Court noted that to obtain an adjudicatory hearing a third party must show "a particularized property interest sufficient to require a hearing on constitutional grounds." In other words, to obtain an adjudicatory hearing, third parties must show that the administrative review procedures have failed to satisfy traditional notions of due process. In the Freshwater Wetlands case, the issue of flood protection was properly before the town Planning Board, not the NJDEP, and the neighbors had the opportunity to challenge the proposed flood planning at the Planning Board level. Indeed, the neighbors succeeded in convincing the Planning Board to deny subdivision approval based on the applicant's inadequate flood planning. Consequently, the Supreme Court affirmed the denial of the request for an adjudicatory hearing because it found that the neighbors' due process rights had been satisfied in another venue (before the Planning Board). Thus, the courts will look at the totality of the factual and procedural record - including the record of separate, but related, cases - in determining whether due process has been satisfied.

In the NJPDES Permit case, Clean Ocean Action (COA) sought party status in connection with a Water Pollution Control Act (WPCA) permit application submitted by the City of Asbury Park. The WPCA contains a provision whereby third-party entities with "party" status may obtain adjudicatory hearings, even if they do not meet the particularized property interest standard. To achieve party status, a third party must meet criteria enunciated in the statute. The first criterion requires the prospective party to raise objections during the public comment period. Another requires that their objections are "likely to affect the permit determination."

COA met the first criterion by properly objecting to the permit. The NJDEP, however, found that COA could not have met the "likely to affect the permit determination" standard since the NJDEP had in fact not changed its permit determination. The Supreme Court affirmed the NJDEP decision. The Supreme Court found that the NJDEP had fairly evaluated the comments, rejected them, and would not likely change its position. And, the Supreme Court found that there were no significant factual disputes. Thus, a third-party challenger must have submitted substantive, factual objections in the notice and comment period, and the NJDEP must have arbitrarily failed to adequately consider those factual objections in its decision-making, before the Appellate Division will require that the NJDEP hold an adjudicatory hearing regarding the issuance of a WPCA permit based on a third-party challenge.

These decisions will likely speed the resolution of administrative decisions - at the administrative level - because third parties will have less ability to challenge agency decision-making at an adjudicatory hearing. These decisions, however, do not fetter the rights of third parties to appeal final administrative decisions to the Appellate Division.

II. Deference As A Sword Against The Permit Applicant

With limited exceptions, agency decisions are treated to a deferential standard of review by appellate courts. For that reason, most agency decisions must be arbitrary and capricious before an appellate court will overturn them. This point was recently underscored when the New Jersey Supreme Court on February 28, 2006 affirmed the Appellate Division (see In re Adoption of N.J.A.C. 7:26E-1.13, Docket No. A-20/21-05 (N.J. Feb. 28, 2006)) - a case in which the NJDEP's prohibition on site specific remediation of groundwater and surface water was granted deference, notwithstanding the seemingly clear and contrary language of section 12 of New Jersey's Brownfield and Contaminated Site Remediation Act, N.J.S.A. 58:10B-1.1 et seq.

Those limited exceptions, however, may provide third parties with meaningful ways to influence agency permitting decisions. First, the agency is only entitled to deference if the legislature has been ambiguous in addressing the issue in its statutory enactment. See Chevron USA, Inc. v. Natural Res. Def. Council Inc., 467 U.S. 837, 842-43, 104 S. Ct. 2778, 81 L. Ed. 2d 694 (1984). Second, agency deference can be used by third parties as sword against permit applicants, as certain agency decisions may be treated deferentially and used against the applicants and agencies in subsequent permitting decisions.

The use of agency deference as a sword was recently seen in the case of NYPIRG v. Johnson, 427 F.3d 173 (2d Cir. 2005), wherein a third-party citizens' group (NYPIRG) challenged the failure of the U.S. Environmental Protection Agency (USEPA) to object to the issuance by the New York Department of Environmental Conservation (NYDEC) of Clean Air Act Title V operating permits for two power plants.

The permit applicants in NYPIRG have to wonder what they did wrong. They applied for, and received, their Title V permits. Both the NYSDEC, which issued the permits, and USEPA, which reviewed the draft permits, agreed to their terms. Both also rejected NYPIRG's comments regarding the need for a compliance schedule in the permits to address alleged past Notices of Violation - violations that the applicants were contesting in litigation.

Both the NYSDEC and the USEPA also rejected the NYPIRG position that the Notices of Violation were sufficient agency findings to support the inclusion of a compliance schedule in the Title V permit. The applicants had challenged the Notices of Violation and the NYSDEC filed suit to enforce the violations. In the NYPIRG action, both agencies argued that the Notices of Violation and the enforcement action were allegations of violation until the enforcement actions terminated.

Nonetheless, the Second Circuit vacated the permits and remanded to the agencies because of the NYSDEC prior issuance of the Notices of Violation. The Second Circuit found that the NYSDEC's prior fact-finding - on which it based the Notices of Violation - was entitled to deference and a presumption by the Court that there were sufficient facts to establish violations. Moreover, these findings of violations required the USEPA to object to the omission from the permits of a compliance schedule to address the violations. The Court held that USEPA's refusal to object to the permit was arbitrary and unreasonable and not entitled to deference. The Court, in effect, gave deference to the findings supporting the Notices of Violation and used that deference affirmatively against the applicants and any subsequent agency action inconsistent with those findings.

The Second Circuit's ruling makes a Notice of Violation a final agency action, or at least final enough to require a compliance schedule for the violation in any subsequent Title V permit or renewal. Yet, other courts have held that Notices of Violation are not final agency action subject to review. Royster Clark Agribusiness Inc. v. Johnson, 391 F. Sup. 2d 21, 27 (D.D.C. 2005); Pacific Corp. v. Thomas, 883 F.2d 661 (9th Cir. 1988); Union Electric Co. v. EPA, 593 F.2d 299, 304-06 (8th Cir. 1979); West Penn Power Co. v. Train, 522 F.2d 302, 310-11 (3d Cir. 1975). Thus, a recipient of a Notice of Violation may have no opportunity to challenge the finding of a violation, and may be forced to accept a Title V permit with a schedule to achieve compliance. This result raises due process concerns and assures that there will be further litigation over this issue.

III. Conclusion

Third parties will remain active and influential in environmental permitting decisions. While they may not be entitled to adjudicatory hearings, as the New Jersey Supreme Court decisions show, the NYPIRG case illustrates how they can also, at least in the Title V area, use prior agency decisions as a sword against permit applicants.

Published April 1, 2006.