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July 24, 2023
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Imagine you’ve purchased some land and plan to build your dream home. You know you need several government approvals, and your contractor says this includes something called a “Chapter 102″ permit. No problem. The folks at the Department of Environmental Protection (DEP) are helpful. You provide them with everything they ask for, and the permit is issued. Then, you get a “notice of appeal.” A neighbor does not want you to build and has challenged DEP’s permitting decision. After several months of litigation, DEP tweaks an error it made in the permit and then settles the lawsuit. Now your neighbor wants you to pay for his lawyer’s fees in that litigation. Can they do that? Following a recent decision from Pennsylvania’s Supreme Court, the answer is probably yes. If you’re thinking that feels unfair—maybe even unconstitutional—you may be right.

Third-party litigation in environmental law is not new. Congress, as well as many state legislatures, have authorized third-party suits to buttress the enforcement of environmental laws. And, as part of this effort, legislatures have specifically authorized recovery of attorney fees by third parties from the entity shown to be in violation of the law. This is a statutorily authorized departure from the “American Rule,” which requires parties to pay their own attorney fees absent bad faith or vexatious conduct. In contrast, attorney fees arising out of the permitting process have, traditionally, been limited to an assessment against the government because it is the government that makes permitting decisions.

Following a February 2023 decision from the Pennsylvania Supreme Court, the Commonwealth is poised to blend these concepts by requiring the permittee to pay the third-party challenger’s attorney fees, even where that permittee applied for and received a permit in good faith. In Clean Air Council v. Department of Environmental Protection, 289 A.3d 928 (Pa. 2023), the Pennsylvania Supreme Court vacated a decision of the Environmental Hearing Board (EHB), which had denied attorney fees because neither party acted in bad faith, and remanded the case to the EHB for further proceedings. The EHB is currently scheduled to hold a hearing on the fee requests in November of this year. The matter is docketed at 2017-009.

This article argues that requiring a permittee to pay the attorney fees of a third-party challenger to a permit in the absence of bad faith on the part of the permittee would violate the Fourteenth Amendment of the U.S. Constitution.

The Commonwealth’s Police Powers and Substantive Due Process Property Rights

A review of basic constitutional principles is helpful here. The Commonwealth’s authority to restrict the activities of its citizens in the name of promoting health, safety and welfare is known as the police power. Environmental statutes are a common example of the state’s exercise of this power. The legislature can and does delegate the authority to execute these restrictions to the executive branch, including to administrative agencies such as the DEP or the EHB. In the context of environmental law, these police power restrictions often take shape as a requirement that a permit be obtained before commencing certain activities on private property to ensure the activities are consistent with existing laws and regulations. This permitting process, including any fees associated therewith, is an exercise of the police power.

While the state’s police power is broad, it is not unlimited. It must be assessed in light of the constitutionally protected right to own and utilize private property. The Fourteenth Amendment to the U.S. Constitution prevents state governments from infringing upon this right, providing in relevant part that, “no state shall … deprive any person of life, liberty, or property without due process of law … ” U.S. Const. amend. XIV.

Noting that private property rights are subject to police power restrictions, the U.S. Supreme Court has cautioned against taking this power too far:

When this seemingly absolute [property] protection is found to be qualified by the police power,
the natural tendency of human nature is to extend the qualification more and more until at last
private property disappears. But that cannot be accomplished in this way under the Constitution
of the United States. Pennsylvania Coal v. Mahon, 260 U.S. 393, 415 (1922)

Importantly, the Fourteenth Amendment provides both procedural and substantive due process protections. Procedural due process asks whether the government allows for an adequate process before taking away protected rights. Substantive due process asks whether the government’s deprivation of a person’s life, liberty or property is justified by a sufficient purpose. Without a sufficient, substantive justification, restrictions upon property rights pursuant to the state’s police power is a violation of substantive due process. Appeal of White, 134 A. 409, 411 (Pa. 1926).

This balancing of constitutional rights is not new. The U.S. Supreme Court developed a test for determining when an environmental restriction violates substantive due process property rights well over 100 years ago, and the test has been adopted by Pennsylvania courts. See Lawton v. Steele, 152 U.S. 133, 137 (1894); see also National Wood Preservers v. Department of Environmental Resources, 414 A.2d 37 (Pa. 1980). The Lawton test provides that, where a state’s exercise of its police power serves a private, rather than public interest, is not reasonably necessary to achieve its purpose, or is unduly oppressive upon an individual, the legislation or the application thereof violates the Fourteenth Amendment.

Clean Streams Law: Section 307

As noted, environmental permits are an exercise of the state’s police power. The permits at issue in the Clean Air Council litigation are referred to as Chapter 102 and Chapter 105 permits, and are issued pursuant to the state’s Clean Streams Law (CSL). CSL Section 307 provides that anyone who “may be adversely affected by” a DEP permitting decision may appeal to the EHB, and anyone involved in that process can, at the EHB judge’s discretion, be awarded attorney fees. Section 307 is sparse, lacking specification on which party can be required to pay fees and under what circumstances. Rather, the provision leaves the decision to the discretion of the EHB judge, with the only limitation being that the fees be “reasonably incurred.” (This sparseness raises the separate constitutional concern that the General Assembly improperly delegated its legislative authority to the EHB.)

Historically, this provision is rarely applied. And, while fees have occasionally been assessed against DEP, the EHB has never awarded fees against a permittee.

In Clean Air Council, Pennsylvania’s Supreme Court held that fees could be assessed against a permittee even if the permittee acted in good faith. This would likely violate the Lawton test.

First, awarding fees to a private, third-party challenger benefits that private party, not the public’s interest in clean streams. Any tangential, speculative environmental benefit cannot justify the additional burden placed on permittees’ private property rights. This is distinct from a situation where a private entity is, for example, actively polluting streams, DEP fails to take action and a third party brings a civil action against the polluter. Indeed, this distinct scenario is provided for in CSL Section 601, where the legislature included attorney fees provisions with more specific criteria governing their application, including notice and opportunity to resolve the litigation before it begins. It is one thing to ask a polluter who is in violation of the CSL to pay the fees of the party that stops the pollution. It is entirely another to add an additional burden on the constitutionally protected right to use one’s property in the first place by exposing that person to attorney fees for an alleged error in a highly technical permit application that often turns on DEP’s discretion and expertise.

Second, Lawton requires the regulatory burden to be reasonably necessary to achieve the stated justification for the exercise of the police power. The CSL was enacted in 1937, and a permittee has never been required to pay for a third party’s challenge to a permit, yet the statute has been administered as intended since that time. It cannot be said this approach is reasonably necessary. Also, Section 307 provides for extensive public participation prior to issuance of the permit, so any concerns should be resolved through that process, not through protracted litigation after the permit is issued.

Third, and most significantly, Section 307 is unduly oppressive to permittees. DEP has the responsibility of implementing the CSL. DEP promulgates regulations and issues guidance documents interpreting the CSL. DEP is staffed with technical experts whose job it is to review permit applications for compliance with these requirements. And, DEP ultimately determines when a permit can be issued. As noted, a permit is an exercise of the government’s restriction of a landowner’s use of his or her private property. It is not a benefit conferred upon landowners by the government. Mandating that a permittee who sought and obtained a permit in good faith to pay for litigation costs arising out of objections to the manner in which the government issued that permit compounds the burden of the permit itself to an unduly oppressive degree.

While we won’t know for many months what the EHB will decide to do following remand in the Clean Air Council case, awarding attorney fees against a permittee in the absence of bad faith would arguably fail each prong of the Lawton test and render Section 307 unconstitutional, as applied. Environmental regulation is important, but ensuring that environmental regulation and the resulting restrictions on the use of private property are consistent with the constitution is critical.

Brigid Landy Khuri is an environmental regulation attorney who serves clients from McNees Wallace & Nurick’s Harrisburg office. She has 10 years of experience counseling clients regarding air, water, waste, land use and remediation issues as well as in related administrative proceedings and litigation. She can be reached at bkhuri@mcneeslaw.com and 717-237-5319.