Marathon Oil Co. v. Environmental Protection Agency
564 F.2d 1253 (1977)
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Rule of Law:
Permit issuance proceedings under § 402 of the Federal Water Pollution Control Act are adjudications that must comply with the formal hearing requirements of the Administrative Procedure Act. When the EPA sets effluent limitations based on statistical analyses that predict a certain percentage of unavoidable violations, it must include formal 'upset provisions' in the permits to account for these expected excursions.
Facts:
- Petitioning oil companies, including Marathon Oil Co. and Shell Oil Co., operate offshore oil and gas platforms and onshore treatment facilities in Cook Inlet, Alaska.
- The platforms and facilities produce three forms of waste: deck drainage, produced water (which rises with oil and gas), and sanitary wastes.
- While some waste is currently pumped to shore for treatment, the companies anticipate that increased production will eventually require them to discharge all treated waste directly from the offshore platforms.
- The companies' normal and necessary operations include drilling, rig moving, and cleanup activities, which can temporarily increase the concentration of pollutants in the wastewater.
- The companies use pollution control technologies, such as flotation systems, to treat the waste before discharge.
Procedural Posture:
- In 1971-1972, petitioner oil companies applied to the Army Corps of Engineers for discharge permits under the Refuse Act.
- After the 1972 FWPCA amendments superseded the prior act, petitioners applied to the Environmental Protection Agency (EPA) for § 402 permits in mid-1973.
- The EPA Regional Administrator issued tentative draft permits in December 1973.
- Petitioners requested and were granted an adjudicatory hearing, which was held before an Administrative Law Judge (ALJ) in August 1974.
- The ALJ certified the hearing record to the Regional Administrator, who issued an 'initial decision' largely upholding the draft permits in April 1975.
- Petitioners sought review of the initial decision from the EPA Administrator.
- On September 25, 1975, the Administrator issued a final decision modifying some limits but denying requests for upset and liberalized bypass provisions.
- The oil companies (petitioners) then filed a petition for review of the Administrator's final decision in the U.S. Court of Appeals for the Ninth Circuit.
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Issue:
Are effluent limitation permits issued by the Environmental Protection Agency under the Federal Water Pollution Control Act procedurally and substantively valid when the EPA denies that formal APA adjudication is required, bases its statistical analysis on extra-record evidence, and refuses to include formal provisions for unavoidable 'upsets'?
Opinions:
Majority - Sneed, Circuit Judge
No. The permits are invalid in several key respects because the EPA failed to follow required procedures under the Administrative Procedure Act (APA) and because the permits' substantive requirements violate the Federal Water Pollution Control Act (FWPCA). Reasoning: The court held that § 402 permit proceedings are adjudicatory, not rulemaking, because they determine the specific rights of individual parties based on disputed facts. The FWPCA's provision for judicial review on a record implies that Congress intended these proceedings to be formal adjudications under APA §§ 554, 556, and 557, even without the statute explicitly stating 'on the record.' While the EPA granted a hearing, it committed procedural errors by relying on extra-record evidence (new data and an internal memo) without giving petitioners an opportunity to comment or challenge it, which violates APA § 556(e). Substantively, the court found the permits illegal because they lacked 'upset provisions.' Since the EPA's own statistical model (using 97.5-99% confidence intervals) acknowledged that even properly operated technology would occasionally exceed the limits, requiring 100% compliance imposes a stricter standard than the 'best practicable control technology currently available' (BPCTCA) mandated by the FWPCA. The EPA's informal policy of prosecutorial discretion is insufficient because it provides no defense against citizen suits. The court also invalidated specific limitations that were based on data improperly excluding normal operations like drilling and cleanup, and it remanded for clarification of the 'bypass' provision.
Dissenting - Wallace, Circuit Judge
No. The permits are invalid not just for statutory reasons, but because the entire administrative process violated the petitioners' Fifth Amendment right to procedural due process. Reasoning: The dissent argues that the potential termination of an ongoing business by denying or setting impossible permit conditions implicates a significant property interest that triggers constitutional due process protections. The core of the due process violation was that the same Regional Administrator who issued the initial draft permits also served as the reviewing authority after the adjudicatory hearing. This procedure combined initial adjudication with appellate review in the same person. Citing Supreme Court precedent, the dissent maintains that due process requires a review proceeding's decision-maker to be different from the one who made the initial decision under review. This structure creates an unacceptable risk of bias, rendering the proceedings fundamentally unfair and unconstitutional, regardless of whether they complied with the APA.
Analysis:
This case significantly strengthened the procedural rights of regulated parties in environmental permit proceedings by classifying EPA § 402 hearings as formal APA adjudications, ensuring rights like cross-examination and on-the-record decisions. Its most influential holding is the requirement for 'upset provisions' in permits based on statistical performance standards. This precedent shifted the burden from regulated entities hoping for prosecutorial discretion to the agency, forcing it to write scientifically predictable, unavoidable non-compliance events into the permits themselves as legal defenses. This provides greater certainty for industries and has shaped the drafting of environmental permits and regulations across various statutes that rely on performance-based standards.
