High Court Validates EPA's Procedures for NPDES Hearings

In one of two recent decisions¹ that promise to streamline administration of the national pollutant discharge elimination system (NPDES), the United States Supreme Court validated the Environmental Protection Agency's (EPA's) refusal to hold a public hearing in connection with the granting of an extension of an NPDES permit for a California sewage treatment plant. In Costle v. Pacific Legal Foundation² the Court interpreted the Federal Water Pollution Control Act (FWPCA)³ not to require the holding of a public hearing whenever a permit is proposed to be issued or modified. On the contrary, the Court concluded unanimously, the statutory requirement that permits be issued only after an "opportunity for [a] hearing"⁴ means no more than that the public must be invited to request a hearing; if no such requests are received, then no hearing need be held.

In Costle v. PLF, EPA had been blessed by a very favorable set of facts. The extension of the NPDES permit in question did not affect the status quo and had elicited virtually no public comment. Thus, the decision might be construed narrowly to obviate hearings only in such clearly noncontroversial cases. This would be a grudging interpretation, however. The Court made a discernible effort to take a long view of the Act's hearing requirements and to measure the Agency's regulations against them. The result is a fairly unequivocal endorsement of the means chosen by the Agency to implement one of the more ambiguous provisions of the Act. Costle v. PLF does not rule out future challenges to EPA's refusal to hold a hearing on an NPDES permit application, but it gives the Agency a trump card that should make such litigation less likely to arise or succeed.

Hearings Under the NPDES Permit Program

Section 402 of the FWPCA allows the Administrator of the EPA, or the appropriate state authority in states that have assumed NPDES permitting powers, to issue NPDES permits only after an "opportunity for public hearing" has been provided.⁵ Beyond this, the statute gives no indication as to what types of hearing Congress had in mind, when they must be held, or who is entitled to participate. The only other provision in the Act that bears directly on the matter is § 101(e), which mandates that public participation in the administration of the Act be "provided for, encouraged, and assisted."⁶

EPA's chosen method of compliance with this ambiguous directive was to establish a two-pronged hearing mechanism. After a discharger has submitted an application for a permit and the Regional Administrator has issued the permit in draft, notice of the proposed issuance of the permit is disseminated through a variety of means.⁷ Interested parties are given 30 days in which to submit written comments on the proposal and to request that a public hearing be held. The regulations provide that a hearing may be held "in appropriate cases, including cases where there is significant public interest."⁸ Informal [10 ELR 10077] procedures (oral and written comment) are employed in these hearings.⁹

When the permit is issued in final form and the Agency has responded to significant comments, there is an opportunity for a second hearing. At this stage any interested party may request the Regional Administrator to hold an adjudicatory hearing to reconsider the terms or issuance of the permit. If, within the 30-day period, the Agency receives a request for such a hearing that raises a material issue of fact, the effective date of thepermit is stayed and an adjudicatory hearing is commenced.¹⁰

No hearings are held when the requests raise only questions of law. These are referred by the Regional Administrator to the General Counsel, who may request briefing by the parties. An adverse final ruling in an adjudicatory hearing or a denial of a request for such a hearing is appealable to the Administrator. Not until there has been an adverse ruling at that level has there been final agency action for purposes of judicial review.¹¹

The Hyperion Plant NPDES Permit

Since 1960 the Hyperion Wastewater Treatment Plant has processed most of the sewage from the City of Los Angeles and discharged the resulting sludge and treated effluent into the Pacific Ocean. The level of treatment of the effluent and the dumping of solids into the ocean were unsatisfactory to federal and state environmental agencies, which resolved to upgrade the plant's performance. An NPDES permit issued jointly by EPA and the state allowed continued discharges on condition that the plant make progress toward full secondary treatment of all effluent and eventually shift from ocean-dumping of sludge to a landfill burial method. The Hyperion plant's compliance schedule was challenged by the Pacific Legal Foundation (PLF) in three separate lawsuits.¹²

Shortly before the Hyperion permit was due to expire in mid-1977, EPA proposed to extend it until late 1979. As required under the Agency's regulations, a draft permit was prepared and notice of the proposed extension was published in the Los Angeles Times and distributed through mailing lists used exclusively for this purpose. Neither a request for a public hearing nor any comments on the action were received within the 30-day comment period. Accordingly, on June 2, 1977, EPA formally extended the permit for the plant and at the same time announced that an adjudicatory hearing would be held if requested by an interested party.

On the day of the deadline for seeking an adjudicatory hearing, PLF learned, somewhat fortuitously,¹³ of EPA's extension of the Hyperion permit and filed a request for a hearing. The request alleged that (1) the schedule for shifting to land-based sludge disposal should be reconsidered because the environmental implications of that move were then the subject of an uncompleted environmental impact statement (EIS), and (2) the procedures followed by EPA in preparing the permit were inadequate because PLF had not been given adequate notice of the previous opportunity for a hearing. The Regional Administrator denied the request on the grounds that it raised only questions of law rather than a material issue of fact. He certified the legal issues to the General Counsel, who ruled in favor of the Agency on all counts.¹⁴ PLF and several other parties petitioned the Ninth Circuit Court of Appeals for review.

The Ninth Circuit's Opinion

Though it rejected most of the claims made by the petitioners, the Ninth Circuit agreed that they had been denied their right to a hearing under the FWPCA.¹⁵ Finding no relevant case law interpreting the phrase "opportunity for hearing" as used in § 402, the court turned for guidance to § 554 of the Administrative Procedure Act,¹⁶ which features identical language. The court observed that an agency wishing not to hold a hearing despite the mandate of § 554 bears the burden of proof that the hearing would be unnecessary.¹⁷ In addition, the court referred to identical language within § 4(c)(8) of the Bank Holding Company Act.¹⁸ In a 1975 decision,¹⁹ the District of Columbia Circuit had read that language to require a hearing in every instance except those in which it "would serve no useful purpose."²⁰ It added that in such cases the agency "carries a heavy burden of justification."²¹

The Ninth Circuit determined that it was appropriate to use similar standards in interpreting § 402 of the FWPCA. It was unpersuaded by EPA's argument that the failure of any party to request a hearing prior to the [10 ELR 10078] extension of the permit was sufficient evidence that little purpose would be served by staging one. The court viewed the lack of requests for a hearing as merely one factor to be considered in assessing whether to hold one. More important, however, was whether the material facts in the case were subject to dispute. The court found that the extension of the Hyperion permit raised several factual questions that were far from free of doubt, such as the ability of the city to attain the compliance schedule set out in the permit and the environmental impacts that might arise from land-based disposal of the sewage sludge. The possibility that the parties might disagree over these matters rendered the court unable to conclude that a hearing would be "futile" or "useless."

One other consideration, though it was played down by the Ninth Circuit, appeared to figure prominently in the decision. Because no hearing of any kind had been held either before or after the decision to extend the permit, no administrative record had been produced. There was virtually nothing on which to ground judicial review of the action other than the briefs submitted on appeal. The court was clearly uncomfortable in that position and explained that an adjudicatory hearing would at least generate the kind of record on which meaningful review could be based.

Although the court of appeals concluded that EPA had not provided the "opportunity for a hearing" required by § 402, it declined ultimately to order that a hearing of any kind be held. Instead, it emphasized that some kind of hearing was presumptively required and remanded the case to EPA to reconsider the matter. But the court made it perfectly clear that what it expected was a hearing, preferably an adjudicatory one, in this and every other matter involving an application for an NPDES permit.

The Supreme Court's Decision

Although it was EPA that petitioned the Supreme Court for review, PLF may well have been less than pleased with the decision below because of the prospect that it would add more layers of red tape to EPA proceedings. At any rate, PLF urged that Court not to consider whether EPA's bifurcated hearing procedure adequately implemented § 402's directive to provide an opportunity for a hearing, nor to pass upon the "heavy burden of justification" which in the Ninth Circuit's view had to be met by EPA to defend its failure to hold a hearing in an NPDES proceeding. It styled the issue as whether it had been proper not to hold a hearing because of the alleged lack of "significant public interest," evidently attempting to win a remand without overburdening the operation of the NPDES program.The Court, however, saw that the thrust of the opinion below went to the very validity of EPA's regulations, and it was to that issue that it turned first.

Justice Blackmun, writing for the unanimous Court, noted that the term "opporunity for a hearing" has historically not given rise to a presumption that a hearing will actually be held in every case. For example, in National Coal Operators Ass'n v. Kleppe²² the petitioners were found to have been afforded an "opportunity for a hearing" despite the fact that a hearing would be held only if request. Getty Oil Co. (Eastern Operations), Inc. v. Ruckelshaus²³ similarly holds that a statutory right to a hearing can be forfeited by failing to make a proper request. Moreover, when interpreting the procedural requirements of the due process clause, the Court has read it not to require a hearing but merely an opportunity for one that can be waived by failure to appear.²⁴

As to the court of appeals' ruling that hearings are presumptively required under § 402, the High Court simply disagreed with that interpretation of the FWPCA. It read the key cases relied upon by the court of appeals to support the opposite conclusion. Though it recognized that in § 101 of the Act Congress had stated explicitly that public participation in NPDES programs should be maximized, it was confident that this purpose would not be undercut by placing on the public the burden of requesting prior hearings.

Moreover, the Court harkened back to its 1978 decision in Vermont Yankee Nuclear Power Corp. v. Natural Resources Defense Council, Inc.,²⁵ which emphasizes that federal agencies are entitled to wide deference in formulating procedures to implement their statutory mandates. In Costle v. PLF, Justice Blackmun stated that EPA had done a reasonable, if not commendable, job of interpreting an ambiguous statutory directive and that judicial rejection of the Agency's regulations on the ground that a better formula was possible would be overreaching. In addition, the Court observed in a footnote that affirmance of the Ninth Circuit might necessitate the holding of adjudicatory hearings in almost all of the thousands of permit proceedings conducted annually by the Agency, as compared to the current practice of holding such hearings is only five percent of the proceedings. The Court was loathe to saddle the Agency with such a monumental impediment to administrative efficiency, particularly since the underlying statute was so vague. In light of all these considerations, the Court declared expansively that EPA's hearing regulations adequately implemented the Act and were valid.

The Court also touched briefly on PLF's contention that EPA had misapplied its regulations in finding no "significant public interest" in the Hyperion permit. In this regard the Court emphasized that the terms and conditions of the permit had been established when it was first issued in 1975 and had been in effect for years. Even in 1975, an adjudicatory hearing had neither been requested nor held. In the Court's view, since the latest action was merely an extension of an old permit, the issues were less likely to be controversial, and there was less reason to require the holding of a hearing.

Finally, the Court rejected PLF's claim that EPA's method of distributing notice of the proposed permit was inadequate and was in fact responsible for the absence of requests for a hearing. EPA's regulations call for notice to be published in local newspapers and to be mailed to participants in past NPDES proceedings as well as anyone else who requests to be informed of proposed permits. Thus, PLF could have been assured of adequate notice had it asked to be placed on EPA's mailing list but neglected to do so. Under these circumstances the [10 ELR 10079] Supreme Court found the notice procedures to be adequate both on their face and as applied in this case.

Conclusion

When Costle v. PLF was handed down, the sigh of relief from EPA headquarters as well as state permitting agencies was almost audible. The opinion suggests that had the Court reached a contrary result the effect might have been to bring the NPDES program to its knees; this undoubtedly reflects the representations of EPA. Whether this also reflects the Agency's true assessment of the Ninth Circuit's decision is less certain. In fact, the real impact of affirmance of that decision upon the NPDES program might well have been slight.

It is difficult to assess accurately what the implications would have been had certiorari to review the Ninth Circuit's decision not been sought or granted. Because neither the holding nor the rationale of the court of appeals was clearly expressed, EPA had been left with a very ambiguous mandate. On one hand, the court implied that, under its reading of § 402, EPA must hold an adjudicatory hearing in every NPDES proceeding unless it can show that such a hearing would be futile or useless.²⁶ Yet a footnote indicates almost as clearly that the court was referring to the informal, predecision hearing.²⁷ The difference between the two types of hearings is crucial in terms of the administrative burdens involved. On remand, EPA would therefore almost certainly not have commenced holding adjudicatory hearings across the board but instead forced the court to reconsider its decision by holding only an informal hearing or even declaring fformally that such a hearing would have been futile. In all likelihood, if given a second chance to address the matter the court of appeals would have specified that its newly created presumption in favor of holding a hearing applies only to informal hearings and thereby taken much of the sting out of its former decision.

Several factors point to this conclusion. First, the court never challenged EPA's ruling that PLF had not asserted a material issue of fact and therefore was not entitled to a post-decision, adjudicatory hearing. Indeed, there was no way in which the court could have questioned this Agency determination. The contentions advanced by PLF were indisputably legal, and it is conclusively settled that agencies need not hold trial-type hearings when no factual issues exist.²⁸ When stripped of all nonessentials, the Ninth Circuit's opinion demonstrates at bottom the court's distress at having to review a rather technical agency decision without the assistance of an administrative record. On remand EPA might well have satisfied the court by conducting an informal hearing in which it received oral and written comments from PLF and other interested parties and supplementing the hearing record by making full responses to the significant comments received.In that event the court would have had little ground to complain that the decision was unreviewable as a practical matter.

Moreover, EPA might have attempted to end run the decision by wriggling through the door left ajar by the Ninth Circuit when it stated that the Agency could again refuse to hold a hearing if it could meet its "heavy" burden of showing that the issues were not subject to legitimate dispute. To make this showing, EPA might have developed an extensive document demonstrating that all legal and factual issues were free of serious doubt and that addressing them in a hearing would be a waste of resources. A document of this type could serve as the equivalent of an administrative record for purposes of review. Therefore, even if the Supreme Court had not reversed the Ninth Circuit, in one way or another EPA and the court of appeals might well have reached an accommodation that would not have strained the future administration of the NPDES program.

Assuming, then, that the Supreme Court did not rescue EPA from a total disaster, what will be the likely prospective effects of Costle v. PLF? First, the Court has renewed its commitment to the principle of deference to agency procedural determinations announced in Vermont Yankee.²⁹ This aspect of Costle v. PLF, when viewed in conjunction with the Court's decision the previous day in Crown Simpson Pulp Co. v. Costle,³⁰ indicates that EPA is drinking from the same cup of judicial solicitude from which the Nuclear Regulatory Commission and other agencies have recently sipped. It would be unwarranted, however, to read the two decisions as evidencing a shift in the Court's sentiments towards environmental issues generally.

Nor is there likely to be any immediate effect on NPDES procedures. After all, the Supreme Court affirmed the Agency's regulations and in essence restored the status quo. EPA has always been strong on public participation in its activities and is unlikely to see Costle v. PLF as either authority or a mandate to cancel hearings it otherwise would have held. The states, on the other hand, have generally shown a lesser willingness to hold added proceedings and admit extra parties.³¹ Current EPA regulations [10 ELR 10080] require only that states seeking NPDES program approval have procedures in place that provide for informal public notice and comment at the pre-decision stage.³² An opportunity for public participation in post-decision adjudicatory proceedings is not necessary. Thus, while the Supreme Court's decision will have little or no direct impact on state programs, its reversal of the Ninth Circuit's suggestion that adjudicatory proceedings are required by the Act is quite significant for the threat that it eliminated.

1. The first was Crown Simpson Pulp Company v. Costle, 48 U.S.L.W. 3599, 10 ELR 20230 (Mar. 17, 1980) (EPA veto of state-issued NPDES permits is reviewable exclusively in courts of appeals). The decision is discussed in Comment, Crown Simpson: Supreme Court Rules EPA Veto of State NPDES Permit Directly Reviewable in Court of Appeals, 10 ELR 10073 (April 1980). The decision discussed herein is Costle v. Pacific Legal Foundation, 48 U.S.L.W. 4243, 10 ELR 20225 (Mar. 18, 1980).

2. 48 U.S.L.W. 4243, 10 ELR 20225 (Mar. 18, 1980).

3. 33 U.S.C. §§ 1251-1376, ELR STAT. & REG. 42101.

4. FWPCA §§ 402(a)(1) & 402(b)(3), 33 U.S.C. §§ 1342(a)(1) & 1342(b)(3), ELR STAT. & REG. 42141.

5. Id.

6. FWPCA § 101(e), 33 U.S.C. § 1251(e), ELR STAT. & REG. 42105.

7. See 40 C.F.R. § 124.41(b), ELR STAT. & REG. 46478.

8. 40 C.F.R. § 124.42(b)(1), ELR STAT. & REG. 46479 (1979). This provision embodies a slight change from the 1978 regulations (which were in effect at the time of the Ninth Circuit's decision in PLF v. Costle), which stated that public hearings shall be held whenever significant public interest has been shown. 40 C.F.R. § 125-34(a) (1978). Although the Agency appears to have granted itself more discretion to deny hearing requests, it indicates that it will grant such requests liberally. See note following 40 C.F.R. pt. 124 at § 124.36 (1979).

9. 40 C.F.R. § 124.42(b)(2), ELR STAT. & REG. 46479 (1979).

10. These proceedings are formal, trial-type hearings in which intervention and cross-examination are permitted. Parties do not have subpoena or discovery rights, however.

11. 40 C.F.R. §§ 124.124-124.127, ELR STAT. & REG. 46493.

12. In 1977 PLF unsuccessfully brought suit to restrain EPA from mandating the switch to land-based sludge disposal pending preparation of an environmental impact statement. Pacific Legal Foundation v. Quarles, 440 F. Supp. 316, 7 ELR 20653 (C.D. Ca. 1977). In another case concerning the Hyperion plant, PLF has obtained a partial summary judgment requiring EPA and the Department of the Interior to analyze, pursuant to the Endangered Species Act, the possible effect of the sludge disposal plan upon the diet of the gray whale and the habitat of the El Segundo butterfly. Pacific Legal Foundation v. Andrus, Civ. No. C-78-3464-AAH(SX) (C.D. Cal. May 8, 1979), appeals docketed, Nos. 79-3472, -3566, -3661 (9th Cir.).

13. PLF was not on the mailing list used by EPA to distribute notice of the permit extension, and no other public announcement of the action was made. Eight days after the permit had been issued, PLF filed a Freedom of Information Act request seeking information on the proposed extension of the permit and was later informed of the fait accompli by telephone.

14. Decision of the General Counsel No. 66, Oct. 7, 1977.

15. Pacific Legal Foundation v. Costle, 586 F.2d 650, 8 ELR 20731 (9th Cir. 1978).

16. 5 U.S.C. § 554, ELR STAT. & REG. 41003. See Marathon Oil Co. v. EPA, 564 F.2d 1253 (9th Cir. 1977); United States Steel Corp. v. Train, 556 F.2d 822, 7 ELR 20419 (7th Cir. 1977) (§§ 554, 556, and 557 of the Administrative Procedure Act govern adjudicatory NPDES proceedings).

17. See United States v. Consolidated Mines & Smelting Co., 455 F.2d 432, 453 (9th Cir. 1971).

18. 12 U.S.C. § 1843(c)(8).

19. Independent Bank Ass'n of Georgia v. Board of Governors of the Federal Reserve System, 516 F.2d 1206 (D.C. Cir. 1975).

20. Id. at 1220.

21. Id.

22. 423 U.S. 388, 397-398 (1976).

23. 467 F.2d 349, 356, 2 ELR 20683, 20685-86 (3d Cir. 1972).

24. Windsor v. McVeigh, 93 U.S. 274, 277 (1876).

25. 435 U.S. 519, 8 ELR 20288 (1978).

26. "An adjudicatory hearing undoubtedly will yield a record that will provide the reasons for the extension." Pacific Legal Foundation v. Costle, 586 F.2d 650, 660, 8 ELR 20731, 20735 (9th Cir. 1978).

27. "We are unwilling to say that the mere failure to request a predecision public hearing is decisive of the question whether a hearing need be held." 586 F.2d at 658-59 n.3, 8 ELR at 20735 n.3 (emphasis added).

28. See, e.g., Federal Power Commission v. Texaco, 377 U.S. 33, 39-44 (1964); Denver Union Stock Yard Co. v. Producers Livestock Marketing Ass'n, 356 U.S. 282, 287 (1958); National Independent Coal Operator's Ass'n v. Morton, 494 F.2d 987, 991-992 (D.C. Cir. 1974). See also K. DAVIS, ADMINISTRATIVE LAW TREATISE § 12:2, at 409-12. The title of subchapter 12:2 conveys the message: "Trials are for factual issues, not for nonfactual issues."

29. It is notable that the facts and rationale in Costle v. PLF bear such a striking resemblance to those in Vermont Yankee Nuclear Power Corp. v. Natural Resources Defense Council, 435 U.S. 519, 8 ELR 20288 (1978). In each case intervenors with an axe to grind convinced appeallate courts that they had been denied procedual rights and that as a consequence the reviewing court had been deprived of an adequate record on which to review the merits of the agency decision. The courts of appeals remanded with loosely worded directives to the agencies to do a better job next time. In each case the Supreme Court reversed, declaring that the judiciary is not to intrude into the administrative domain by engrafting upon agencies its own notions of what constitute ideal procedures.

30. 48 U.S.L.W. 3599, 10 ELR 20230 (Mar. 17, 1980).

31. See Citizens for a Better Environment v. EPA, 596 F.2d 720, 9 ELR 20092 (7th Cir. 1979) (overturning EPA's approval of Illinois' NPDES program for failure to assure adequate public participation in enforcement).

32. See 40 C.F.R. § 123.12(a)(18)-(26).