August Mack Environmental Inc. v. EPA ( 2021 )

UNPUBLISHED
UNITED STATES COURT OF APPEALS
FOR THE FOURTH CIRCUIT
No. 19-1962
AUGUST MACK ENVIRONMENTAL, INC.,
Plaintiff – Appellant,
v.
UNITED STATES ENVIRONMENTAL PROTECTION AGENCY,
Defendant – Appellee.
Appeal from the United States District Court for the Northern District of West Virginia, at
Clarksburg. Thomas S. Kleeh, District Judge. (1:18-cv-00012-TSK)
Argued: October 26, 2020 Decided: January 7, 2021
Before KING and DIAZ, Circuit Judges, and Stephanie A. GALLAGHER, United States
District Judge for the District of Maryland, sitting by designation.
Vacated and remanded by unpublished opinion. Judge King wrote the opinion, in which
Judge Gallagher joined. Judge Diaz wrote a dissenting opinion.
ARGUED: Philip R. Zimmerly, BOSE MCKINNEY & EVANS, LLP, Indianapolis,
Indiana, for Appellant. Katelin Shugart-Schmidt, UNITED STATES DEPARTMENT OF
JUSTICE, Washington, D.C., for Appellee. ON BRIEF: Bradley R. Sugarman, Andrew
M. McNeil, BOSE MCKINNEY & EVANS LLP, Indianapolis, Indiana, for Appellant.
Jeffrey Bossert Clark, Assistant Attorney General, Eric Grant, Deputy Assistant Attorney
General, Evelyn Ying, Austin Saylor, Environment and Natural Resources Division,
UNITED STATES DEPARTMENT OF JUSTICE, Washington, D.C.; Benjamin Cohan,
Lee Tyner, UNITED STATES ENVIRONMENTAL PROTECTION AGENCY,
Washington, D.C., for Appellee.
Unpublished opinions are not binding precedent in this circuit.
2
KING, Circuit Judge:
The plaintiff in these proceedings, August Mack Environmental, Inc., seeks to
recover nearly $2.7 million in costs incurred cleaning up a contaminated industrial property
in Fairmont, West Virginia, that has been designated as a so-called “Superfund” site under
the Comprehensive Environmental Response, Compensation, and Liability Act
(“CERCLA”). The defendant, the Environmental Protection Agency (the “EPA”),
dismissed August Mack’s administrative claim. In principal part, the EPA determined that
August Mack’s failure to properly seek preauthorization for the cleanup work precluded a
recovery of its costs from the Superfund. When August Mack sought review of the EPA’s
adverse decision in the Northern District of West Virginia, the district court dismissed the
operative complaint under Federal Rule of Civil Procedure 12(b)(6), for failure to state a
claim upon which relief can be granted. See Order Granting Motion to Dismiss Amended
Complaint, August Mack Env’t, Inc. v. EPA, No. 1:18-cv-00012 (N.D. W. Va. July 11,
2019), ECF No. 46 (the “Dismissal Order”). August Mack appeals from the court’s
judgment and, as explained herein, we vacate and remand.
I.
A.
In July 2000, the thirty-eight-acre contaminated industrial property in Fairmont —
known as the Big John’s Salvage–Hoult Road Superfund Site (the “BJS Site,” or simply
the “Site”) — was added to the EPA’s National Priorities List (the “NPL”), which rendered
3
the BJS Site eligible to receive money from the Superfund for cleanup. 1 The Site includes
land historically used in the operation of a coal tar refining facility and for salvage and
waste disposal operations. Reilly Tar and Chemical Corporation owned a portion of the
Site and operated a coal tar processing plant there for about forty years, from at least 1933
to 1973. Domestic Coke Corporation sold crude coal tar to Reilly until 1948 and owned a
railroad right-of-way that traversed a portion of the Site. In January 1973, Reilly sold the
property to Big John’s Salvage, Inc., which operated a junk salvage facility on the Site until
approximately 1984. Big John’s Salvage accepted and stored waste materials that
contained hazardous substances and various salvageable materials, including crushed non-
saleable fluorescent light bulbs, lead dust, oil containing mercury, drummed liquid wastes,
and other wastes from Westinghouse Electric’s light bulb manufacturing plant.
The foregoing uses of the BJS Site resulted in its adulteration with contaminated tar
and other hazardous substances. After the Site was placed on the NPL, the EPA identified
Vertellus Specialties, Inc., ExxonMobil Corporation, and CBS Corporation as “Potentially
Responsible Parties” under CERCLA. 2 On October 10, 2012, the three Potentially
1
The facts spelled out herein are drawn from the record on appeal, and are primarily
from August Mack’s operative complaint against the EPA and the complaint’s exhibits,
one of which is the Consent Decree that governed cleanup of the BJS Site.
2
A Potentially Responsible Party under CERCLA means “any person who may be
liable pursuant to section 107(a) of CERCLA, 42 U.S.C. 9607(a), for response costs
incurred and to be incurred by the United States.” See 40 C.F.R. § 304.12(m). Vertellus
is the successor-in-interest to Reilly with respect to the BJS Site. Further, ExxonMobil is
the successor-in-interest to Domestic Coke, and CBS is the successor-in-interest to
Westinghouse.
4
Responsible Parties entered into a Consent Decree with the EPA and the West Virginia
Department of Environmental Protection. The Potentially Responsible Parties were
explicitly listed as being bound by the Consent Decree, which further provided that
“[n]othing in this Consent Decree shall be construed to create any rights in, or grant any
cause of action to, any person not a Party to this Consent Decree.” See Consent Decree,
August Mack Env’t, Inc. v. EPA, No. 1:18-cv-00012, at 77 (N.D. W. Va. June 1, 2018),
ECF No. 23-1. Further, according to the Consent Decree’s terms, the Northern District of
West Virginia was given jurisdiction over the subject matter of the Consent Decree.
Pursuant to the Consent Decree, Vertellus was required to perform cleanup work on
the Site, as specified and approved by the EPA. With the EPA’s approval, Vertellus hired
August Mack, the plaintiff here, as the supervising contractor of the Site’s cleanup. August
Mack is an Indiana-based environmental firm that provides, among other things, regulatory
compliance and remediation services.
Additionally, the Potentially Responsible Parties were required to provide the EPA
with nearly $37 million in cash and financial assurances to be used to clean up the BJS
Site, which constituted funds specific thereto. These Site-specific funds served as a
performance guarantee for the cleanup efforts. Under the Consent Decree, if Vertellus
ceased performing the cleanup work, or if the EPA determined that Vertellus’s work was
unsatisfactory, the EPA could issue a Work Takeover Notice. Such a Notice would trigger
the EPA’s rights to take custody of the Site-specific funds and allow the EPA to complete
the work itself.
5
August Mack performed cleanup work at the BJS Site for more than three years,
from about October 2012 to May 2016. The EPA monitored and approved all of August
Mack’s actions during those cleanup efforts. For example, August Mack prepared and
submitted a Removal Design Work Plan that specifically identified the cleanup work to be
conducted, which the EPA then reviewed and approved. August Mack also engaged in
other pre-design investigation activities, including evaluation of sediment, soil, and
groundwater, in support of the Work Plan.
August Mack expected to be reimbursed for its work at the BJS Site by Vertellus or
from the $37 million in Site-specific funds. In May 2016, Vertellus declared Chapter 11
bankruptcy and notified the EPA that it would cease cleanup efforts at the BJS Site.
Pursuant to the Consent Decree, the EPA issued a Work Takeover Notice of the Site and
assumed responsibility for the cleanup operations. The Site-specific funds were then
transferred to the EPA and placed in a Special Account.
After Vertellus filed for bankruptcy, August Mack made a series of efforts to recover
nearly $2.7 million it had expended in cleaning up the BJS Site and had not been paid.
August Mack unsuccessfully filed claims against Vertellus in bankruptcy court. It also
requested reimbursement of its response costs from both CBS and ExxonMobil, but those
requests were rejected. In January 2017, August Mack requested that the EPA reimburse
it from the Superfund or from the Special Account. The EPA denied any reimbursement
or recovery to August Mack.
6
B.
In March 2017, August Mack appealed the EPA’s denial of reimbursement to the
EPA’s Office of Administrative Law Judges and was accorded an administrative hearing.
The EPA moved for a dismissal of the August Mack administrative proceedings. On
December 18, 2017, an EPA administrative law judge (the “ALJ”) granted the EPA’s
motion to dismiss, ruling that August Mack had not secured the agency’s express
preauthorization, pursuant to 40 C.F.R. § 307.21(b), before it sought reimbursement from
the Superfund for the response costs it had incurred in cleaning up the BJS Site. 3 More
specifically, the ALJ applied a strict compliance standard and faulted August Mack for
failing to fill out and submit the EPA’s preauthorization form, i.e., EPA Form 2075-3. In
so doing, the ALJ rejected August Mack’s contention that substantial compliance with the
preauthorization process is sufficient and that strict compliance is not required.
Additionally, the ALJ denied August Mack’s claim for disbursement from the Special
Account because August Mack was not a party to the Consent Decree and because the ALJ
lacked jurisdiction over those Site-specific funds.
On January 17, 2018, August Mack filed its action in the Northern District of West
Virginia, pursuant to 42 U.S.C. § 9612(b)(5), requesting court review of the ALJ’s denial
of its administrative claim for reimbursement from the Superfund. August Mack later
3
In relevant part, 40 C.F.R. § 307.21(b) provides that response costs will be eligible
for payment from the Superfund if the “response action is preauthorized by the EPA
pursuant to § 307.22” and the “costs are incurred for activities within the scope of EPA’s
preauthorization.” The preauthorization process is further explained in § 307.22.
7
amended its complaint to add a claim for reimbursement from the Special Account. The
EPA then filed a motion in the district court to dismiss the operative complaint under Rule
12(b)(6), for failure to state a claim upon which relief can be granted.
By its Dismissal Order of July 11, 2019, the district court granted the EPA’s motion
to dismiss, being satisfied that the ALJ had not acted arbitrarily or capriciously in denying
August Mack’s reimbursement claims. According to the Dismissal Order, August Mack
had neither sought nor received preauthorization from the EPA and was therefore ineligible
for reimbursement from the Superfund. The court rejected August Mack’s argument that
the doctrine of substantial compliance applies to the question of whether a claimant has
fulfilled the preauthorization requirements for Superfund reimbursement. The court also
ruled that August Mack could not recover its response costs from the Special Account
because August Mack was not a party to the Consent Decree. This appeal followed, and
we possess jurisdiction pursuant to 28 U.S.C. § 1291.
II.
We review de novo a district court’s dismissal of a complaint for failure to state a
claim under Federal Rule of Civil Procedure 12(b)(6). See S.C. Dep’t of Health & Env’t
Control v. Com. & Indus. Ins. Co., 372 F.3d 245, 255 (4th Cir. 2004). In assessing a Rule
12(b)(6) motion, the court is obliged to “accept as true all of the factual allegations
contained in the complaint.” See Anderson v. Sara Lee Corp., 508 F.3d 181, 188 (4th Cir.
2007) (internal quotation marks omitted). When an appeal to a court of appeals relates to
a district court’s dismissal of a complaint involving review of an agency decision, the
8
agency ruling is not to be vacated absent an “arbitrary or capricious abuse of discretion”
by the agency. See 42 U.S.C. § 9612(b)(5). An abuse of discretion occurs when the agency
action is arbitrary or capricious. See United States v. Dillard, 891 F.3d 151, 158 (4th Cir.
2018) (recognizing that a “district court abuses its discretion when it acts arbitrarily”);
United States v. Torrez, 869 F.3d 291, 321 (4th Cir. 2017) (explaining that under the abuse
of discretion standard, we “must determine whether the court’s exercise of discretion[] . . .
was arbitrary or capricious”). Of course, an error of law also constitutes an abuse of
discretion. See Hunter v. Earthgrains Co. Bakery, 281 F.3d 144, 150 (4th Cir. 2002).
III.
CERCLA created the federal Superfund to clean up uncontrolled and abandoned
hazardous waste sites, as well as accidents, spills, and other emergency releases of
pollutants and contaminants into the environment. Through CERCLA, the EPA has the
authority to seek out the accountable parties and assure their cooperation in the necessary
cleanups. Generally, the Potentially Responsible Parties must either perform the cleanup
or reimburse the EPA for its cleanup work. Section 111 of CERCLA, however, authorizes
payments from the Superfund for, inter alia, reimbursement of private parties for response
costs. More specifically, section 111(a)(2) of CERCLA provides for “payment of any
claim for necessary response costs incurred by another person as a result of carrying out”
the National Contingency Plan (the “NCP”), provided that the “costs must be approved
9
under said plan and certified by the responsible Federal official.” See 42 U.S.C.
§ 9611(a)(2). 4
While not required by statute, CERCLA’s implementing regulations mandate that a
claimant intending to recover from the Superfund must apply for and obtain approval of
response costs prior to beginning the cleanup activities. See 40 C.F.R. § 307.22(a). A
claim must be “preauthorized by EPA pursuant to § 307.22” and may include only costs
“incurred for activities within the scope of EPA’s preauthorization.” Id. § 307.21(b).
Under the CERCLA regulations, a “preauthorization” is defined as the “EPA’s prior
approval to submit a claim against the [Superfund] for necessary response costs incurred
as a result of carrying out” the NCP. Id. § 307.14. To obtain the EPA’s prior approval, the
regulations state that a claimant must submit an application for preauthorization before
commencing a response action. Id. §§ 307.14, 307.22(a).
In this situation, August Mack did not seek or obtain an express preauthorization
from the EPA before its cleanup of the BJS Site, by using EPA Form 2075-3 or otherwise.
Nevertheless, August Mack maintains that it is entitled to recover from the Superfund.
August Mack’s position on appeal is that it only needs to demonstrate substantial
compliance with the preauthorization process, and that, in any event, strict compliance was
impossible because EPA Form 2075-3 has been obsolete for more than twenty years. As
4
The NCP is the federal government’s blueprint for responding to oil spills and
releases of hazardous substances. The NPL — where the BJS Site was listed in 2000 — is
Appendix B of the NCP.
10
explained below, we agree that it was legal error for the EPA to require strict compliance,
rather than substantial compliance. Thus, the EPA’s decision to apply a strict compliance
standard was an arbitrary and capricious abuse of discretion. 5
A.
The doctrine of substantial compliance is a tool designed to “assist the court in
determining whether conduct should, in reality, be considered the equivalent of
compliance.” See Peckham v. Gem State Mut., 964 F.2d 1043, 1052 (10th Cir. 1994). It
is “an equitable doctrine designed to avoid hardship in cases where the party does all that
can reasonably be expected of him.” See Sawyer v. Sonoma Cnty., 719 F.2d 1001, 1008
(9th Cir. 1983).
Notably, the CERCLA regulations incorporate the doctrine of substantial
compliance into an assessment of whether cleanup work on a Superfund site is “consistent
with” the NCP requirements. See 40 C.F.R. § 300.700(c). When a private party seeks to
recover response costs from a Potentially Responsible Party, it must prove that its work
was consistent with the NCP. Broadly speaking, the NCP requires, under the applicable
5
August Mack has alternatively requested that it be reimbursed from the Site-
specific funds in the Special Account established under the Consent Decree. According to
August Mack, the EPA should reimburse it from the Special Account because the Consent
Decree directed that the Site-specific funds had to be “used to conduct or finance response
activities at or in connection with the BJS Site.” See Consent Decree 50. Nonetheless, the
Decree provides that “[n]othing in this Consent Decree shall be construed to create any
rights in, or grant any cause of action to, any person not a Party to this Consent Decree.”
Id. at 77. The Decree lists the parties bound by it: Vertellus, CBS, and Exxon. Thus,
nothing in the Decree provides August Mack with the right to recover from the Special
Account.
11
regulations, that such a private party must comply with all rules for worker health and
safety; documentation and cost recovery requirements; identification of needs for response,
removal, or remedial site evaluations; selection of remedies; and operation and
maintenance. See 40 C.F.R. § 300.700(c)(5). The NCP also requires the private party to
provide an opportunity for public comment. Id. § 300.700(c)(6).
A response action will be deemed consistent with the NCP if “the action, when
evaluated as a whole, is in substantial compliance with the applicable requirements . . . and
results in a CERCLA-quality cleanup.” See 40 C.F.R. § 300.700(c)(3)(i) (emphasis
added). The doctrine of substantial compliance thereby ensures that a Potentially
Responsible Party will not escape cost liability because of a private party’s “immaterial or
insubstantial deviations” from NCP requirements. Id. § 300.700(c)(4); see also Ashley II
of Charleston, L.L.C. v. PCS Nitrogen, Inc., 791 F. Supp. 2d 431, 480 (D.S.C. 2011), aff’d,
714 F.3d 161 (4th Cir. 2013).
Nonetheless, the specific regulation relied on by the EPA in this case, 40 C.F.R.
§ 307.22(a), does not use “substantial compliance” language. Thus, we must first assess
whether it would be appropriate to apply a substantial compliance standard to August
Mack’s Superfund claim. As the Ninth Circuit has explained, “in the context of statutory
prerequisites, the [substantial compliance] doctrine can be applied only where invocation
thereof would not defeat the policies of the underlying statutory provisions.” See Sawyer,
719 F.2d at 1008 (emphasis added). As explained heretofore, there is no preauthorization
requirement in the CERCLA statutory provisions — the preauthorization requirement
relied upon by the EPA was created solely by the EPA itself in writing its regulations.
12
Even if the substantial compliance doctrine can only be applied when it would not
defeat the policies of the underlying regulatory provisions, the doctrine may still be applied
here. When the EPA promulgated its regulations on the preauthorization process, it
identified four objectives: (1) ensuring appropriate use of the Superfund, (2) ensuring that
response actions do not create environmental hazards; (3) ensuring that response actions
are consistent with the NCP; and (4) ensuring that response actions are accomplished with
the EPA’s approval and are reasonable and necessary. See 54 Fed. Reg 37892-01, at
*37898 (Sept. 13, 1989). We are satisfied that applying the substantial compliance doctrine
would not undermine any of those objectives.
B.
That we are satisfied that the substantial compliance doctrine can be utilized does
not mean that the doctrine must be applied. An important fact, however, persuades us that
applying a substantial compliance standard is compelled here. That is, the form that the
EPA purports to require from an applicant for Superfund payment — EPA Form 2075-3
— is legally obsolete.
Black’s Law Dictionary defines “obsolete” as “no longer in general use;
out-of-date.” See Obsolete, Black’s Law Dictionary (11th ed. 2019). Although we have
not definitively spoken on the issue, it is common sense that obsolete forms do not carry
any legal weight. Cf. McGavock v. City of Water Valley, 452 F.3d 423, 427-28 (5th Cir.
2006) (ruling that obsolete regulations are “without effect”).
There are several reasons that EPA Form 2075-3 — which is found at Appendix A
of 40 C.F.R. § 307.22 — is legally obsolete. First, Form 2075-3 is the same today as it
13
was in 1991. On its face and by its own terms, the Form expired more than twenty-five
years ago, on December 31, 1994. Next, the EPA itself has implicitly declared the form to
be obsolete. In 1997, the EPA’s Office of Information Resources Management published
a “Form Catalog.” The purpose of that Catalog was to identify all administrative and
program-related forms currently used by the Agency, as well as forms declared obsolete
during a survey conducted in mid-1995. The EPA’s Form Catalog does not identify Form
2075-3 as a form the EPA used in 1997; rather, Form 2075-3 was specifically listed as a
form the EPA had “declared obsolete” since September 1, 1995. Lastly, the directions on
the face of Form 2075-3 are outdated. 6
Put simply, the EPA should not arbitrarily fault August Mack for failing to strictly
comply with the preauthorization process when the EPA itself has declared the required
form to be obsolete. Indeed, because EPA Form 2075-3 is obsolete, August Mack could
not be required to seek preauthorization in the manner specified by the EPA and thus a
substantial compliance standard is wholly appropriate and necessary. The EPA failed to
consider August Mack’s allegations under the applicable substantial compliance standard,
and thus the EPA’s dismissal of August Mack’s claim was an arbitrary and capricious
6
A glaring example of the outdated directions on EPA Form 2075-3 is the
instruction that “[w]hen completed this form should be sent to . . . 401 M Street, S.W.,
Washington, D.C. 20460” to the attention of the “Director, Office of Emergency and
Remedial Response.” The Office of Emergency and Remedial Response, however, was
eliminated in 2015 by the EPA as “unnecessary.” See 80 Fed. Reg. 77575-78 (Dec. 15,
2015). Similarly, the Waterside Mall, which had previously housed the EPA at 401 M
Street, S.W., has been demolished and no longer exists.
14
abuse of discretion. See Cooter & Gell v. Hartmarx Corp., 496 U.S. 384, 405 (1990) (“A
district court would necessarily abuse its discretion if it based its ruling on an erroneous
view of the law.”); Hunter v. Earthgrains Co. Bakery, 281 F.3d 144, 150 (4th Cir. 2002)
(“Of course, an error of law . . . is by definition an abuse of discretion.”). 7
IV.
At bottom, it was legal error for the EPA to require strict compliance with its
preauthorization process in order for August Mack to prove its Superfund claim. Our
decision today, however, does not mean that August Mack is necessarily entitled to recover
on its claim for response costs. No discovery was conducted, and whether August Mack
substantially complied with the preauthorization process was not assessed in the
administrative proceedings. On remand, the EPA is entitled to dispute and litigate August
Mack’s compliance and any Superfund reimbursement that might be awarded.
7
August Mack also contends that EPA Form 2075-3 violates the Paperwork
Reduction Act because it does not display a current OMB control number. The Paperwork
Reduction Act specifies that “no person shall be subject to any penalty for failing
to . . . provide information to any agency if the information collection request
involved . . . does not display a current [OMB] control number.” See United States v.
Hicks, 947 F.2d 1356, 1359 (9th Cir. 1991) (citing 44 U.S.C. § 3512). Nonetheless,
because we determine that Form 2075-3 is obsolete and thus August Mack needed only to
substantially comply with the preauthorization requirement, we need not reach the
Paperwork Reduction Act contention.
15
Pursuant to the foregoing, we vacate the district court’s judgment and remand for
such other and further proceedings as may be appropriate, including a remand to the EPA
for further administrative proceedings.
VACATED AND REMANDED
16
DIAZ, Circuit Judge, dissenting:
My colleagues vacate the district court’s dismissal of August Mack’s amended
complaint and remand for further proceedings, holding that the EPA may not require strict
compliance with its preauthorization process in evaluating August Mack’s claim for
reimbursement from the Superfund. But because August Mack failed to allege even
attempted compliance with the preauthorization requirement, I respectfully dissent.
The issue before us is whether the district court incorrectly granted the EPA’s Rule
12(b)(6) motion to dismiss August Mack’s amended complaint for judicial review. We
review a district court’s dismissal of a complaint for failure to state a claim de novo,
viewing the complaint in the light most favorable to the plaintiff and accepting all well-
pleaded factual allegations as true. S.C. Dep’t of Health & Envtl. Control v. Commerce &
Indus. Ins. Co., 372 F.3d 245, 255 (4th Cir. 2004). Relevant here, August Mack challenges
the EPA’s denial of its claim for reimbursement from the Superfund for clean-up work it
performed at a contaminated site. The EPA’s final administrative decision is binding,
conclusive, and may not be overturned unless it constitutes an arbitrary or capricious abuse
of discretion. 42 U.S.C. § 9612(b)(5).
The EPA denied August Mack’s claim because August Mack didn’t obtain
preauthorization for reimbursement from the Superfund prior to commencing its work.
Pursuant to 40 C.F.R. § 307.22(a), “[n]o person may submit a claim to the [Superfund] for
a response action unless that person notifies the Administrator of [the] EPA or his designee
prior to taking such response action and receives preauthorization by [the] EPA.” See also
40 C.F.R. § 307.11(a) (“Only response actions that [the] EPA has preauthorized are eligible
17
for reimbursement through the claims process”). The applicable regulations also provide
that “[the] EPA shall review each preauthorization application and will notify the applicant
of the decision to grant or deny preauthorization. Decisions to grant preauthorization will
be memorialized in a PDD,” or Preauthorization Decision Document. 40 C.F.R.
§ 307.23(a). “If [the] EPA grants preauthorization, the applicant may begin the approved
response action subject to the terms and conditions contained in the PDD.” 40 C.F.R.
§ 307.23(e). *
August Mack appealed the EPA’s denial and received an administrative hearing
before an ALJ. Though it’s undisputed that August Mack didn’t apply for preauthorization
until years after completing its work, it argued that the doctrine of substantial compliance
should apply to the preauthorization process because the EPA has made strict compliance
impossible by failing to update its obsolete form application. The ALJ rejected this
argument and held that August Mack’s failure to obtain preauthorization rendered it
ineligible for reimbursement from the Superfund. My colleagues hold that it was legal
error for the ALJ to require strict compliance and remand for further proceedings to
determine whether August Mack substantially complied.
It may well be appropriate to apply the doctrine of substantial compliance in
reviewing whether a party has satisfied the regulatory requirement of seeking (and
*
The only appellate court to address the preauthorization requirement is the D.C.
Circuit, which upheld it as an appropriate exercise of EPA’s authority under the
Comprehensive Environmental Response, Compensation, and Liability Act. See Ohio v.
EPA, 838 F.2d 1325 (D.C. Cir. 1988).
18
receiving) preauthorization from the EPA prior to commencing work on a response action
for which the party hopes to be reimbursed from the Superfund. I also accept that the
EPA’s decades-long failure to update its obsolete form application weighs in favor of
affording a party some leeway when reviewing whether efforts made to comply with the
requirement were sufficient.
But the problem in this case is that August Mack didn’t allege any facts that suggest
it even attempted to comply, much less substantially complied, with the requirement. As
the ALJ and the district court recognized, August Mack concedes that it didn’t seek
preauthorization for reimbursement from the Superfund because it expected to receive
payment for its work from either Vertellus (who was contractually obligated to pay August
Mack) or the site-specific fund. Indeed, the district court didn’t fault August Mack for
failing to strictly comply with the EPA’s process; rather, it reasoned that August Mack’s
“substantial compliance argument has no merit because this is not a mere technical
oversight on [August Mack]’s behalf; it is an outright failure to attempt to comply with
clear federal regulations.” J.A. 312.
The only facts alleged in August Mack’s amended complaint that even touch on
substantial compliance with the preauthorization requirement are that, in performing under
the Consent Decree, Vertellus selected August Mack “as the ‘Supervising Contractor’ to
perform the EPA-approved cleanup work,” the “EPA specifically approved [August Mack]
as the ‘Supervising Contractor,’” and the EPA “supervised all of the work [August Mack]
performed and all of the costs [it] incurred.” J.A. 9. But, as the EPA points out, these
allegations can’t support a finding of substantial compliance with the preauthorization
19
requirement because 40 C.F.R. § 307.22(j) expressly provides that “the terms, provisions,
or requirements of a court judgment, Consent Decree, administrative order (whether
unilateral or on consent), or any other consensual agreement with EPA requiring a response
action do not constitute preauthorization to present a claim to the [Superfund].” (emphasis
added). Thus, because it’s “irrelevant that [the] EPA authorized and supervised [August
Mack]’s work,” J.A. 312, the district court properly dismissed August Mack’s amended
complaint for failure to state a claim. See Bell Atlantic Corp. v. Twombly, 550 U.S. 544,
570 (2007) (requiring dismissal when a plaintiff fails to plead “enough facts to state a claim
to relief that is plausible on its face.”).
In short, even assuming the doctrine of substantial compliance applies to the
preauthorization requirement, August Mack’s amended complaint falls far short of alleging
substantial compliance here. And August Mack’s concession that it didn’t even attempt to
comply with the preauthorization requirement makes it inevitable that August Mack will
fare no better on remand.
Because I would affirm the district court’s dismissal of August Mack’s amended
complaint, I respectfully dissent.
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