Friday, March 8, 2013

Did Supreme Court ruling rein in EPA enforcement?


This guest post, written by Thomas G. Echikson of LeClair Ryan, originally appeared in the law firm's Environmental Law Insights. LeClair Ryan has offices in several cities, including Washington, D.C., New York City, Newark, NJ and Philadelphia.
  
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Did SCOTUS Just Rein In EPA’s Enforcement Authority?  

Thomas G. Echikson
As a general rule, to recover civil penalties for environmental violations, EPA or citizens must file suit within five years of the violation.  This is the default statute of limitation that applies to most civil penalty actions brought by the federal government.  Courts, however, have applied exceptions to this rule.  For example, if the violation is a “continuing” one, then the violation accrues each day. In that case, EPA can recover civil penalties for the five years before it files suit.
Another exception that has been used to extend the five year period is the so-called “discovery” rule. This rule provides that when a defendant “fraudulently conceals” a violation, the limitations period does not begin to run (or is tolled) until EPA, with diligent effort, discovers that violation. In a decision issued last week, the Supreme Court may have just killed this exception, a result which would put a dent in EPA’s enforcement capabilities.
Gabelli v. Securities Exch. Comm’n. involved an enforcement action by the Securities and Exchange Commission (SEC) alleging that the managers and officers of a mutual fund engaged in fraud.  The SEC argued that the discovery rule should apply to such fraud cases, thereby extending the five year limitations period (the same one that applies to EPA actions). The Supreme Court swiftly rejected this argument, concluding that the discovery rule had never been applied in fraud actions in which the government seeks civil penalties.
EPA, of course, generally does not bring fraud cases, but the Court’s decision suggests that the Court might reject the discovery rule even when the defendant has fraudulently concealed the underlying environmental violation (despite the fact that the Court explicitly said it was not ruling on this issue). This can be seen in the reasoning the Court employed in rejecting the SEC’s arguments in favor of the discovery rule.
As the Court explained, the discovery rule is intended to protect the victim of fraud who, despite reasonable efforts, does not realize that he or she has been injured. As a result, Courts have equitably extended the date the action accrues until victim discovers his or her injury. The Court reasoned that “[m]ost of us do not live in a state of constant investigation; absent any reason to think we have been injured, we do not spend our days looking for evidence that we were lied to or defrauded.” In contrast, in fraud cases, the SEC is not the victim and is not seeking damages for injuries it has suffered. Rather, a “central mission” of the SEC is to investigate and discover violations of law. In that context, the SEC has enforcement authorities not available to the average fraud victim. As a result, “the SEC as enforcer is a far cry from the defrauded victim the discovery rule evolved to protect.”
The same rationale can be applied to EPA. Like the SEC, one of EPA’s “central missions” is to investigate and discover violations of law, and Congress has given EPA extraordinary authorities to achieve this mission.  When someone commits an environmental violation, EPA has not suffered any injury and is not asking the court for damages. Rather, like the SEC, EPA is seeking civil penalties intended to punish the violator.  Given the similarities between the SEC and EPA, it is not a big leap to announce the death of the discovery rule in all government led civil enforcement actions, including those brought by EPA.
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