Schadenfreude at the Supreme Court: San Francisco takes on the EPA

San Francisco is the Josef K. of the modern era of the administrative state. In The Trial by Kafka, the protagonist Josef K. is accused of a serious crime. While he never learns exactly what the alleged crime was, he spends the rest of the book, and his life, trying to defend himself.

The Clean Water Act prohibits the discharge of pollutants into waterways. But in many cases, it is impossible to achieve a zero discharge. Thus, the Act has a permit scheme whereby a discharger like San Francisco can obtain a permit that sets out strict standards for what can be discharged. Compliance with the permit standards insulates the permittee from liability. But a violation can lead to civil and criminal penalties.

The Supreme Court heard oral arguments in San Francisco v. EPA on October 16. San Francisco claims that EPA’s water quality standards for its combined sewer and storm water systems is so ambiguous it’s impossible to tell if and when it is in violation of those standards. Under most conditions, the City’s effluent is good enough. But when it rains and the street runoff combines with the sewer system, overflows happen and pollution ensues. The City wants only strict effluent limitations with numerical limits for pollutants like bacteria and solids so it can be certain that it is in compliance. But the EPA has added a generic narrative standard requiring that San Francisco not “cause or contribute” to pollution of the ocean. Without knowing exactly what it must do to meet that standard, and given that there are other sources of pollution besides its own, the City is at risk of unwittingly violating its permit conditions and being subject to civil and criminal liability.

It's a real risk. Shortly after San Francisco petitioned for certiorari in its challenge to the standards, EPA sued the City separately for violating the terms of the ambiguous permit conditions. At oral argument at the high Court, EPA acknowledged that it had sued the City for violations, but averred it was seeking only a few “tens of millions of dollars” in fines. And, perhaps in a spirit of noblesse oblige, it isn’t seeking criminal penalties. For now. But San Francisco told the Court that by its calculations it could be on the hook for “$10 billion” in fines. Plus, more billions in future compliance costs.

The crux of the dispute is what the Clean Water Act requires in Section 301(b)(1)(C) when it says discharge permits should have “limitations.” Does it mean only numerical “effluent limitations” as described in two preceding portions of the Act—subsections (b)(1)(A) and (B)—or does it mean any other type of limitation that EPA thinks is necessary to protect water quality—such as the limitation here that San Francisco may not “cause or contribute” to a violation of water quality standards in the receiving ocean waters. Much of the oral argument swirled around the typical concerns of statutory construction and legislative intent. Should the word “limitations” be interpreted according the company it keeps in the preceding subsections? Or should the Act’s intent of cleaning up the nation’s waters guide the Court’s interpretation?

In their questioning, it was apparent that the Justices are split along ideological lines. Those who are skeptical of the administrative state were more concerned about the practicalities of what EPA was demanding—and the uncertainty that is engendered by ambiguous standards. Other Justices, especially Justices Sotomayor and Kagan, focused more on EPA’s broad authority to further its mission to stop water pollution.

Justice Kagan, for example, told City attorney Tara Steeley that there was no argument that “the statute prevents EPA from [adopting generic standards.]” Seeking an easy way to resolve the case, Justice Sotomayor at one point suggested that the City had forfeited it’s main argument because “it wasn’t raised in the Ninth Circuit,” only mentioned in the dissent.

Justice Gorsuch noted that the Clean Water Act was adopted to “to give people notice ex ante of their legal obligations, rather than rely on tort ex post, nuisance law.” Justice Kavanaugh rhetorically asked whether anything in the “statute authorizes something like the generic limitations, correct?” The answer from the City was, “no.” When EPA attorney Fredrick Liu argued that the City failed to give the EPA enough detailed information for the agency to set numerical limitations, Chief Justice Roberts cut him off remarking that, “in the bad old days” before the Clean Water Act was adopted, “people didn’t know what they [were] supposed to do,” and “you’re going back . . . because it, one, gives you more power to you because you don’t have to tell the people who are discharging what they have to do or not . . . it’s a lot easier for [the EPA].”

At another point in the argument, Liu suggested that farmers and other small businesses might actually prefer the less precise language EPA employs in some of its permits. Justice Kavanaugh would have none of it, noting that the Farm Bureau representing “six million farm families . . . along with . . . nearly every business sector across the U.S. economy” had filed an amicus brief opposing EPA’s position because “they’re not happy with just leaving it up to you to represent their interests . . . and make it impossible for many permittees to protect themselves from unanticipated liability.”

Critics of both the EPA and the City are experiencing a bit of schadenfreude in watching the case unfold. This case has been politically difficult for San Francisco to prosecute. Shortly before the argument, some of the City’s supervisors expressed concern that it was not on the side of angels. The Board voted 8-2 a request that city officials settle the suit quickly because if it won that could “greatly harm water quality nationwide.” To date, the City attorney David Chiu has declined to settle because the cost to the City’s ratepayers could be in the billions if EPA wins.

If this case follows the pattern of other recent administrative law cases at the Court, EPA may well lose and San Francisco may be lauded, for the time being, by business interests throughout the land. It is an irony that would make fans of Kafka proud.