The Nickel Report

Judicial review of state agency regulatory orders in California has long been seen as an exercise in futility as state courts typically give significant deference to agency determinations. However, two recent decisions by California Superior Courts have bucked that trend and may provide renewed hope that success at the trial court level is not out of reach.

One case was decided by the Alameda County Superior Court, United Artists Theatre Circuit, Inc. v. California State Water Resources Control Board, et al., and the other, Sweeney & Point Buckler Club, LLC v. San Francisco Bay Conservation and Development Commission, et al., was decided by the Solano County Superior Court. Both decisions involved orders issued by the the San Francisco Bay Regional Water Quality Control Board (SF Regional Board) pursuant to California Water Code section 13304(a) of the Porter-Cologne Water Quality Control Act (Porter-Cologne). Section 13304 is an almost 50 year old statute that gives the State Water Resources Control Board and the nine Regional Water Quality Control Boards (collectively, the Water Boards) authority to require and enforce the cleanup and abatement of waste that is discharged into waters of the state. In each case, the court ruled that the SF Regional Board overstepped the limits of its legal authority by improperly interpreting the meaning of key statutory terms: “permitted,” “waste,” “discharge” and “waters of the state.” Other reasons for overturning the orders included lack of evidence, violations of due process and imposition of excessive fines.

Both decisions are now being appealed. If the decisions are upheld, the consequences could be far-reaching and may substantially curtail the scope of the Water Boards’ authority under section 13304(a), such as the ability to require certain site cleanups or pursue certain potentially responsible parties for penalties under California law. Even if these decisions are reversed, aggrieved parties should still think twice before foregoing judicial review.

The decisions are discussed further below.

United Artists Theatre Circuit, Inc. v. California State Water Resources Control Board, et al., Alameda County Superior Court, Case No. RG16-811955, decided October 26, 2017.

This decision addresses what it means to “permit” the discharge of a waste. Here, the court ordered the SF Regional Board to vacate Site Cleanup Requirements (Order) issued to United Artists Theatre Circuit, Inc. (UATC). The challenged Order named UATC as one of two parties responsible for the cleanup of tetrachloroethene (PCE) contamination discharged from a former dry cleaner at a shopping center. The SF Regional Board named UATC on the Order because “[UATC] owned the [shopping center] during the time of the PCE discharges, had knowledge of the activities that caused the discharge, and had the legal ability to prevent the discharge….” UATC asserted that it should not be named as a responsible party because it did not permit the discharge of PCE, and it could only be liable for a required cleanup if it had actual or constructive knowledge of the discharge at the time it occurred.

The court faced an issue of first impression in this case: the meaning of “permitted” as used in Water Code section 13304(a). Section 13304(a) provides, in relevant part:

A person who has … caused or permitted, causes or permits, or threatens to cause or permit any waste to be discharged or deposited where it is, or probably will be, discharged into the waters of the state and creates, or threatens to create, a condition of pollution or nuisance, shall, upon order of the regional board, clean up the waste or abate the effects of the waste….

Porter-Cologne does not define the term “permitted” nor, the court found, has the term been defined in any precedential judicial decisions. Consequently, the court was faced with interpreting the statute.

The SF Regional Board argued that section 13304(a) is a strict liability statute or, in the alternative, that the meaning of “permitted” only requires knowledge of the activity that resulted in the discharge. In other words, UATC should have known that a dry cleaner’s use of hazardous chemicals at the shopping center included the potential for unauthorized discharges and, as a result, was responsible for permitting a discharge regardless of UATC’s lack of actual or constructive knowledge that such a discharge occurred. In opposition, UATC argued that finding a party liable for “permitting” a discharge requires evidence that a person had actual or constructive knowledge of an unlawful discharge and not simply knowledge of the activities that resulted in the discharge.

The court agreed with UATC. Based on its independent analysis of the text of the statute, the legislative history of section 13304(a), appellate authority, State Water Board adjudicative decisions, and State Water Board informal policies, the court concluded that section 13304(a) does not impose a strict liability standard on landowners. The court explained:

[T]he word “permitted” means that the person charged with permitting a discharge must have had contemporaneous actual or constructive knowledge of either a specific discharge or of a dangerous condition that poses a reasonable suggestion of a discharge at the site….

The “knowledge of a dangerous condition that poses a reasonable suggestion of a discharge at the site” standard requires more than knowledge of the possibility that a discharge might occur. The standard requires that the person has “actual knowledge of [a] dangerous condition” at the site and not merely “aware[ness] of the dangers generally inherent in the activity….”

[The Water Boards] cannot presume in all cases that any location where hazardous liquids are stored or used is a location where there is a dangerous condition that is likely to result in a discharge.

Consequently, UATC’s general knowledge that a dry cleaner used PCE was not sufficient to deem UATC liable for the cleanup.

Concluding thoughts on United Artists Theatre Circuit

This case calls into question the liability of current and former property owners who are named on cleanup orders for “permitting” a discharge of contaminants to the extent their responsibility is based only upon their knowledge of third-party activities that resulted in the discharge. The Water Boards have historically considered such persons to be liable for cleanup; if affirmed on appeal, this decision will curtail the Water Boards’ authority to cast such a wide net of liability.

Sweeney & Point Buckler Club, LLC v. San Francisco Bay Conservation and Development Commission, et al., Solano County Superior Court, Case No. FCS048861, decided December 26, 2017.

This decision may reshape the regulatory landscape for dredge and fill operations. The case concerns regulatory enforcement in connection with levee repair activities at Point Buckler Island (Island), a 39-acre island located in Suisun Marsh, which is part of the San Francisco Bay-Delta estuary and the largest contiguous brackish marsh on the west coast. The Island has long operated as a managed wetland, commonly referred to as a Duck Club. According to the court, Duck Clubs use levees and tide gates to maintain relatively constant water levels in the duck ponds because ducks prefer artificial ponds over natural tidal marsh. For this reason, the owners of the Island have maintained a levee encircling the Island since the 1920s to prevent tidal flow onto the Island.

The Island’s levee fell into disrepair and was breached in several places. The owner sought to repair the levee by using dirt excavated from an interior ditch and placing the dirt on or inland of the existing levee.

The SF Regional Board and the San Francisco Bay Conservation and Development Commission (BCDC) halted the levee repair work. The SF Regional Board determined that such repair resulted in the unauthorized filling of a tidal wetland in violation of the Water Quality Control Plan for the San Francisco Bay Basin (prohibition against discharge of earthen materials in quantities sufficient to unreasonably affect beneficial uses) and Clean Water Act sections 301 (discharge of a pollutant without a permit) and 401 (failure to obtain a water quality certification before discharge fill material). After a hearing, the SF Regional Board issued a Cleanup and Abatement Order (CAO), which required the owners to mitigate the unauthorized discharge of fill material and effectively prohibited any further excavation of ditches, repair to the levees or removal of vegetation. The SF Regional Board also issued an Administrative Civil Liability Complaint (ACLC) that imposed $2.828 million in penalties for the work already performed. After a separate hearing, the BCDC issued a Cease and Desist Order (CDO) and imposed a separate penalty of $772,000 for repairing the levee without obtaining a marsh development permit.

The owners sought judicial review of the CAO, ACLC and CDO. In three sweeping Statements of Decision, the court vacated each order in its entirety on numerous grounds.

Perhaps the most consequential of the three, the CAO decision has the potential to upset how the Water Boards have traditionally exercised their authority to regulate the discharge of earthen material. The SF Regional Board asserted that the excavation and placement of dirt on the levee constituted a “discharge of waste” into “waters of the state” that “created a condition of pollution,” all of which are necessary conditions to issuing a CAO pursuant to section 13304(a). However, the court found that the CAO did not meet any of these conditions and, in so doing, made several significant conclusions of law:

• Excavating ditches and removing vegetation are not “discharges” under Porter-Cologne. Porter-Cologne does not define “discharge,” and therefore the court looked to the dictionary and federal case law to find its meaning. The court explained that the ordinary meaning of “discharge” includes the flowing out or emission of something, but does not include an act of “removal.” Consequently, the court ruled that removal of dirt and vegetation is not a “discharge,” and the SF Regional Board lacked authority to issue the CAO.
• Dirt used to repair the levee is not a “waste” as defined under Porter-Cologne. Porter-Cologne defines “waste” to include:

[S]ewage and any and all other waste substances, liquid, solid gaseous, or radioactive, associated with human habitation, or of human or animal origin, or from any producing, manufacturing, or processing operation, including waste placed within containers of whatever nature prior to, and for purposes of, disposal.

The court explained that a “waste” is something discarded as worthless or useless. Here, however, “the dirt used for the levee work was a valuable binding material, not something discarded as worthless or useless.” In other words, earthen material used to repair or reconstruct a levee is not a waste. For this reason, the SF Regional Board lacked authority to issue the CAO.

The court noted that the US Army Corps of Engineers (Corps) has taken the same position. In an August 2016 letter commenting on the State Water Board’s proposed State Wetland Definition and Procedures for Discharges of Dredged or Fill Materials to Waters of the State, the Corps stated, “The definition of waste [under Porter-Cologne] does not include discharges of dredge or fill material.”

• “Waters of the state” do not include dry land. Porter-Cologne defines “waters of the state” to include “any surface water or groundwater, including saline waters, within the boundaries of the state.” The court noted, however, that Porter-Cologne “does not define where a surface water ends and dry land begins.” According to evidence adduced at trial, the court concluded that the Duck Club site is not a “water of the state” because it is not inundated by tides and or saturated by surface or groundwater like a typical wetland. Consequently, the SF Regional Board lacked authority to issue a CAO on this ground.
• Work to repair the levee did not create a “condition of pollution.” There was no “condition of pollution” created by the levee work because the work did not unreasonably affect beneficial uses. To the contrary, the court held that work to repair the levee promoted beneficial uses by restoring the functioning of the duck ponds, as authorized under the Preservation Act. The SF Regional Board’s finding of harm to beneficial uses was not supported by the weight of the evidence; the agency’s asserted harm to fish was unquantified and highly speculative. For this reason, the SF Regional Board lacked authority to issue the CAO.

As noted above, the court also granted the owners’ writ for several additional reasons. One worth mentioning here is that the court found the SF Regional Board and BCDC imposed the combined $3.6 million in penalties with vindictive intent and violated the Eighth Amendment’s prohibition on excessive fines. After discussing the owners’ culpability, the relationship between the harm and the penalty, penalties imposed for comparable misconduct and the owner’ ability to pay, the court ruled that the amount of the penalties was grossly disproportionate to the gravity of the alleged offense. The court remarked that the penalties were the highest amount the agencies have historically imposed, where such severe penalties are typically reserved for actions that cause catastrophic harm. Here, however, there is no evidence of harm, and the levee work provides “clear and definite” “benefits to the environment.” The court’s rescission of the $3.6 million penalty is a repudiation of the SF Regional Board’s and BCDC’s overbroad exercise of authority in issuing penalties for discharge and permit violations.

Concluding Thoughts on Sweeney

The triad of decisions by the Superior Court in Sweeney is a sharp rebuke of the SF Regional Board's and BCDC’s authority to regulate the maintenance of levee systems. Should the court’s decision in Sweeney be upheld on appeal, the scope of dredge and fill regulation under state law will be substantially more limited. The court’s interpretations of “discharge” and “waste” may exempt most dredge and fill operations from state permitting requirements and cleanup orders. If “discharge” excludes removal activities, and “waste” excludes earthen material used for a valuable purpose, then the State Water Board would no longer be able to issue waste discharge requirements to dredge and fill operations in non-jurisdictional wetlands, and its authority to issue clean-up and abatement orders to these operations would similarly be limited.