Clean Streams Law; Permittee Attorney Fee Liability

Clear Air Council v. Pennsylvania Dep’t of Environmental Protection, 245 A.3d 1207 (Pa. Cmwlth. 2021), allocatur granted Oct. 5, 2021, appeal dockets 73 & 74 MAP 2021

The Pennsylvania Supreme Court will consider the proper standard for the assessment of fees against private DEP permittees under Section 307(b) of the Clean Streams Law.

Section 307(b) provides that the EHB, “upon the request of any party, may in its discretion order the payment of costs and attorney’s fees it determines to have been reasonably incurred by such party in proceedings pursuant to this act.”  35 P.S. § 691.307(b).

Commonwealth Court summarized the relevant background as follows:

On February 13, 2017, DEP granted a total of 20 permits to Sunoco, 3 for erosion and sediment control and 17 for water obstruction and encroachment, which Sunoco had sought relating to its plan to construct the Pennsylvania Pipeline Project also known as the Mariner East 2 natural gas pipeline. EHB Op. at 2. This decision was appealed to the EHB on February 14, 2017, by the Organizations [Sunoco and Objectors], id., which led to a series of additional appeals, filings, and negotiations resulting in a settlement agreement between Objectors and the DEP, which stated that it

generally provides for the development or revision of [DEP] policies and procedures relating to future natural gas pipelines in consideration for [Objectors] withdrawing their appeal. The settlement provides for the establishment of a stakeholder group on pipeline construction, and for the online availability of pipeline permit applications and review documents. No part of the settlement altered any of the 20 permits under appeal, [a February 8, 2018 consent order and agreement between DEP and Sunoco], or the various other stipulated orders entered into by all the parties. [Objectors] received $27,500 in reimbursement of costs and attorney’s fees from [DEP] in the settlement and agreed not to seek further reimbursement for fees and costs from [DEP].

Id. at 4. Sunoco was not a party to this settlement agreement. Id.

Objectors then filed an application for costs and fees with EHB, seeking to recover $228,246 from Sunoco for Objectors’ efforts relating to certain segments of their EHB appeal and the costs incurred in the fee application process itself. EHB Op. at 5-6. Sunoco responded with an application of its own, requesting $298,906.12 in costs and fees from Objectors, in order to partially cover the expenses Sunoco had incurred by defending against the EHB appeal, as well as any costs and fees resulting from the fee application process. Id. at 6.

Slip op. at 2-4 (footnotes omitted).

EHB Decision

In a divided opinion, EHB denied both applications. In its opinion, the majority highlighted that different policy considerations must be considered, as the applications under consideration sought costs and fees from private parties, not Commonwealth entities, and thus “the standard for awarding fees against any private party need not be concomitant with the standard for fees against [DEP].” Slip op. at 4-5, quoting EHB Op. at 8. Thus, the EHB majority held that a more stringent standard, in which a private party could be liable for such costs and fees only if EHB found that the private party “engaged in dilatory, obdurate, vexatious, or bad faith conduct in the course of prosecuting or defending [an] appeal[ to the EHB]” was appropriate. Slip op. at 5, quoting EHB Op. at 10. The majority reasoned that this standard was necessary to protect permittees’ due process rights in the context of a third-party appeal and would not result in permittees being “dissuaded from vigorously protecting their interests in those proceedings in good faith.” Slip op. at 5, quoting EHB Op. at 9. The EHB further noted that “no other credible, workable alternative to the bad faith standard has been proposed.” Slip op. at 5, quoting EHB Op. at 10. In support, the majority cited to the Pennsylvania Supreme Court’s opinion in Lucchino v. Department of Environmental Protection, 809 A.2d 264 (Pa. 2002), which affirmed EHB’s use of a bad faith standard in determining whether to impose an award of costs and fees against a private individual. Applying this bad faith standard, the majority found that neither Objectors nor Sunoco operated in bad faith during the course of Objectors’ appeal and, on that basis, denied the respective fee applications.

The EHB minority agreed that neither Objectors nor Sunoco was entitled to attorney’s fees under the circumstances, but on the basis that Section 307(b) of The Clean Streams Law clearly and unambiguously establishes a uniform standard that permits EHB, upon request, to assess costs and fees at its discretion, without any need for a finding of bad faith. The minority disagreed with the majority’s application of a bad faith standard to fee applications, reasoning that there is no legal basis for applying a bad faith standard, nor for using different tests depending upon whether the application is lodged against a government entity or a private party.  The minority opined that Lucchino is distinguishable from this matter, reasoning that while Lucchino requires EHB to apply a bad faith standard when considering a fee application lodged against a third-party appellant, it does not require the same standard when a fee application is directed towards permittees. Moreover, the minority disagreed “that allowing attorney’s fee awards against permittees [would] have a ‘chilling effect’ on permit applicants” based on permittees and third-party appellants different interests. Slip op. at 6, quoting EHB Op. at 21. Furthermore, the minority noted that Section 307(b)’s fee-shifting provision is to be liberally construed, and that, based on a permittee’s role in the permitting process and any resultant appeals, “if the law mandates an award of attorney’s fees under The Clean Streams Law [to the appellant], … a permittee should shoulder at least some of its rightful responsibility.” Slip op. at 6, quoting EHB Op. at 21-25.

Arguments on Appeal

Objectors argued that bad faith is not the only “workable” standard for this type of scenario, and that EHB erred by not using the “catalyst test” recognized in Kwalwasser v. Department of Environmental Resources, 569 A.2d 422 (Pa. Cmwlth. 1990) to evaluate Objectors’ fee application. Id. at 10-13. Under the catalyst test:

(1) the applicant must show that the opposing party provided some of the benefit the fee-requesting party sought in the underlying suit, (2) the applicant must show that the suit stated a genuine claim, and (3) the applicant must show that the suit was a substantial or significant reason why the opposing party, voluntarily or otherwise, provided the benefit or partial benefit that the fee requesting party sought in the underlying suit.

Slip op. at 13 (citations omitted). Objectors further argued that EHB’s use of the bad faith standard is, under the circumstances, not supported by the plain language of Section 307(b) of The Clean Streams Law, case law, or public policy considerations and that Section 307(b) should be construed as neither requiring third-party appellants to prove bad faith conduct to recover costs and fees, nor mandating that EHB should review DEP’s and permittees’ actions using different standards when considering a fee application. Objectors reasoned that the EHB majority misinterpreted Lucchino, because “[t]he question Lucchino resolved was not whether bad faith was the right standard, but whether fees could be awarded against an appellant at all,” and that “[EHB] misunderstands the holding in Lucchino, which did not require or set a new standard but merely affirmed a fee award against an appellant.” Slip op. at 14, quoting Objectors’ Brief at 25. Objectors further criticized the EHB’s due process concerns, stating that:

[t]he [“]chilling effect[”] the [Lucchino] Court … was primarily concerned about is one that would disincentivize bringing meritorious appeals, not defending against them. 809 A.2d at 270. Permittees, being the beneficiary of the permit, will always have an interest in defending the permit. Lucchino also concerns guarding against frivolous suits, id., but that is not an issue here.

Slip op. at 14, quoting Objectors’ Brief at 26.

Sunoco countered that EHB’s exercise of discretion in electing to apply a bad faith standard rather than the catalyst test in evaluating the fee applications was supported by both case and statutory law. Sunoco, noting its lack of involvement in the settlement between DEP and Objectors, further argued that EHB’s use of a bad faith standard was appropriate as a matter of public policy because (1) it is DEP’s statutory responsibility to enforce The Clean Streams Law and (2) on appeal, EHB reviews DEP’s actions, rather than those of the permittee, and (3) the catalyst test is fact-intensive and difficult to consistently apply.

Commonwealth Court Opinion

Commonwealth Court acknowledged that in Kwalwasser, 569 A.2d at 424, the court had previously “noted that [its] disagreement with the EHB’s reasoning or result is not sufficient ground to overturn the EHB’s decision” and that it “may not substitute [its] judgment for that of the EHB.” Slip op. at 15. Citing Solebury Township v. Department of Environmental Protection, 928 A.2d 990 (Pa. 2007), in which the Pennsylvania Supreme Court held that the EHB’s application of the Kwalwasser criteria to preclude counsel fees where there was no formal judgment “was too narrow in view of the broad language of Section 307 and the public policy favoring liberal construction of fee-shifting provisions,” Commonwealth Court explained that its “review of EHB determinations under Section 307(b) of The Clean Streams Law is limited to determining whether the EHB abused its discretion” and emphasized the court’s analysis in Solebury Township:

[G]iven Pennsylvania’s strong policy to justly compensate parties who challenge agency actions by liberally interpreting fee-shifting provisions, see Lucchino, [809 A.2d at 269], we agree with the [t]ownships that the EHB’s narrow application of the Kwalwasser criteria in the present matter was erroneous. More specifically, the broad grant of discretion to the EHB in awarding attorney’s fees under Section 307 renders [EHB’s and PennDOT’s] argument that a formal judgment is necessary to a finding that a party has prevailed with some degree of success on the merits untenable. Instead, we agree with the Commonwealth Court that the practical relief sought by the [t]ownships should be considered when characterizing them as prevailing parties for purposes of the Kwalwasser test. Accord Buckhannon [Board & Care Home, Inc. v. West Virginia Department of Health & Human Resources, 532 U.S. 598, 633 (2001)] (Ginsburg, J., dissenting) (“[W]here the ultimate goal is not an arbiter’s approval, but a favorable alteration of actual circumstances, a formal declaration is not essential.”). In addition, the EHB’s exclusive focus on the dismissal of the case as moot, without conducting a hearing or making further factual findings and legal conclusions, does not justify its holding that the [t]ownships did not achieve some degree of success on the merits and did not make a substantial contribution to the full and final determination of the issues. Finally, as Lucchino makes clear, the EHB may, in its discretion, award attorney’s fees under Section 307 solely on the basis of a finding of bad faith or vexatious conduct, which is supported by the record, without reference to the Kwalwasser criteria. See Lucchino, [809 A.2d at 269-70]. In this regard, however, we agree with [EHB and PennDOT] that the Commonwealth Court erred by characterizing [their] conduct as vexatious on the undeveloped record before it. . . . Since we conclude that the EHB’s application of the Kwalwasser criteria in the present matter was too narrow in view of the broad language of Section 307 and the public policy favoring liberal construction of feeshifting provisions, we cannot determine the propriety of the EHB’s denial of the [t]ownships’ motion for attorney’s fees under Section 307 on the present record. Accordingly, the order of the Commonwealth Court is vacated, and the matter is remanded to the EHB for further proceedings consistent with the above.

Slip op. at 17-18, quoting Solebury Township, 928 A.2d at 1004-05.  Commonwealth Court concluded that the EHB did not abuse its discretion in applying a bad faith standard, reasoning that:

Based on the [Supreme Court’s analyses in Solebury Township and Lucchino], and contrary to Objectors’ assertions, the catalyst test is not the sole and exclusive standard that EHB may employ in disposing of a request for costs and fees against a permittee under Section 307(b) of The Clean Streams Law. Indeed, we have specifically recognized that EHB’s “broad discretion includes the authority to adopt standards by which [it] will evaluate applications for costs and fees.” Sierra Club [v. Department of Environmental Protection], 211 A.3d [919, 926 (Pa. Cmwlth. 2019)].

In the instant case, it was entirely within EHB’s discretion, and eminently appropriate, to apply the instant bad faith standard in deciding whether or not to impose costs and fees upon a private party permittee. In sum, “our disagreement with the EHB’s reasoning or result is not sufficient ground to overturn the EHB’s decision,” and “[w]e may not substitute our judgment for that of the EHB” in this regard.

Slip op. at 18-19.

In a concurring opinion joined by Judge Cohn Jubelirer, Judge Brobson concurred with the majority’s affirmance of the EHB’s order denying Objectors counsel fee request, but explained that he would, applying the abuse of discretion set forth in Solesbury Township, “simply affirm the decision because there is absolutely no basis in the record upon which the EHB could have exercised its discretion below in such a way as to compel Sunoco to pay Objectors’ legal fees under Section 307(b) of The Clean Streams Law.” Slip op. at PKB-4. In particular, Judge Brobson observed:

Sunoco was not a party to the settlement agreement between Objectors and DEP that essentially ended Objectors’ appeals. Moreover, Sunoco gave up nothing in the settlement or otherwise. Sunoco kept its permits, unaltered, as if Objectors had not even filed their appeals with the EHB. Under such circumstances, it would be manifestly unreasonable to order Sunoco, or any permittee, to pay Objectors’ attorney’s fees. For this reason, I concur in the majority’s decision to affirm the EHB’s order.

Id. However, Judge Brobson noted that Section 307(b)’s mandate may amount to an unconstitutional  delegation of legislative authority, reasoning that there “are no standards in this section or elsewhere to cabin the EHB’s discretion.” Slip op. at PKB-2. Moreover, Judge Brobson disagreed with the majority’s application of the standard of review, reasoning:

Putting aside the utter lack of any statutory standards, we must still review the EHB’s exercise of discretion for abuse. See Solebury Twp. v. Dep’t of Env’t Prot., 593 Pa. 146, 928 A.2d 990, 997 n.8 (2007). “An abuse of discretion is not merely an error of judgment, but if in reaching a conclusion the law is overridden or misapplied or the judgment exercised is manifestly unreasonable, or the result of partiality, prejudice, bias, or ill will, as shown by the evidence or the record, discretion is abused.” Commonwealth v. Spiewak, 533 Pa. 1, 617 A.2d 696, 699 n.4 (1992) (emphasis added). Here, the EHB adopted a “bad faith standard,” concluding that fees against a permittee would only be warranted where the permittee engaged in offensive conduct in the course of defending its appeal before the EHB. The majority holds that this bad faith standard was “eminently appropriate” in this case. (Clean Air Council v. Dep’t of Env’t Prot., 245 A.3d 1207, 1218 (Pa. Cmwlth. 2021).) While I agree, as the EHB is operating without legislative guardrails, I see no reason why “bad faith” must be the only test. I, therefore, cannot endorse it as such with respect to the exercise of the EHB’s discretion under Section 307(b) of The Clean Streams Law.

Slip op. at PKB-3 – PKB-4.

In a dissenting opinion, Judge Ceisler opined that the EHB’s use of a bad faith standard to be an abuse of its discretion, reasoning that:

Requiring a showing of bad faith in this kind of situation does not square with the public policy purpose underpinning Section 307(b)’s fee-shifting language. To state the obvious, a permittee necessarily plays a critical role in the permitting process, for without an initial permit application, there would be no reason for subsequent litigation initiated by a third party. It does not therefore seem reasonable that, in theory, the DEP could be saddled with fees and costs in response to inadvertent mistakes or good faith, negotiated compromises or settlements, while a permittee could get off scot-free under similar circumstances unless it has conducted itself in a dilatory, obdurate, or vexatious way.

Slip op. at EC-2.

The Supreme Court granted Clean Air Council, The Delaware Riverkeeper Network, and Mountain Watershed Association, Inc.’s Petition for Allowance of Appeal, limited to the following issues:

1) Did the Commonwealth Court err by reviewing a pure question of law using the abuse of discretion standard of review, rather than the legal error standard, contrary to Solebury Twp. v. DEP, 928 A.2d 990 (Pa. 2007), Samuel-Bassett v. Kia Motors Am., Inc., 34 A.3d 1 (Pa. 2011), and DEP v. Bethenergy Mines, 758 A.2d 1168 (Pa. 2000)?

2) Did the Commonwealth Court err in adopting a new standard for fee awards under Section 307(b) of the Clean Streams Law, 35 P.S. § 691.307(b), where that standard sets aside this Court’s holding in Solebury Twp. v. DEP, 928 A.2d 990 (Pa. 2007) and ignores the text and purpose of the law?

The Supreme Court also granted DEP’s Petition for Allowance of Appeal as to the following issue:

Did the Commonwealth Court err in casting aside the Kwalwasser test as the proper standard for attorney fee liability in favor of a “Bad Faith” standard that effectively requires the public to be solely responsible for citizen fees in all matters arising under section 307(b) of the Clean Streams Law?


 

For more information, contact Kevin McKeon or Dennis Whitaker.