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Bad Actor Provision in Act 13 only applies to PADEP “Final Actions”

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Some people may have overlooked the fact that the General Assembly put a "Bad Actor" provision in Act 13 that gives PADEP the right to deny a drilling permit if the permit applicant has outstanding violations.  It’s in Section 3211 and it reads as follows:

(e.1) Denial of permit. – The department may deny a permit for any of the following reasons:  . . .

(5) The department finds that the applicant, or any parent or subsidiary corporation of the applicant, is in continuing violation of this chapter, any other statute administered by the department, any regulation promulgated under this chapter or a statute administered by the department or any plan approval, permit or order of the department, unless the violation is being corrected to the satisfaction of the department.  The right of the department to deny a permit under this paragraph shall not take effect until the department has taken a final action on the violations and:

(i) the applicant has not appealed the final action in accordance with the act of July 13, 1988 (P.L. 530, No. 94), known as the Environmental hearing Board Act; or

(ii) if an appeal has been filed, no supersedeas has been issued.

Denying a permit application based on an applicant’s compliance history is a power given to PADEP in many of the environmental laws it administers.  Based on my experience, however, the Department uses that power very infrequently.  How likely is it that it will use this "Bad Actor" provision to deny drilling permits?  That’s difficult to predict.  Could a third party appellant use this "Bad Actor" provision to force PADEP to deny a permit application based on continuing violations?  I think that is impossible, given the language in Section 3211.  Let me highlight several things in the "Bad Actor" provision of Act 13: 

First, the statute says that PADEP "may" deny the permit as a result of ongoing violations, but denial is not mandated.  Thus, the power is entirely in PADEP’s discretion and can’t be invoked by a third party challenging the issuance of a permit.

Second, the statute says that the Department won’t deny the permit application based on continuing violations if "the violation is being corrected to the satisfaction of the department."   Thus, if the party is cooperating, PADEP has the discretion to overlook the violation in the context of reviewing a drilling application.

Third, the Department’s right to deny a permit application for continuing violations is only triggered when the violation has resulted in a "final action".  This is the most interesting part of the "Bad Actor" provision, in that those of us who regularly practice before the PA Environmental Hearing Board know that "final action" is a term of art.   The term distinguishes between actions taken by the Department that are appealable (i.e., a "final action") and those that are unappealable (i.e., something other than a final action).  The EHB has discussed that distinction on numerous occasions.  In the Langeloth Mettallurgical Company decision written by Judge Labuskes, here is what he said about the line between what is an appealable "final action" and what is not:  

[T]his case highlights that it is impossible to draw a bright line between appealable and nonappealable actions, and such a determination must be made on a case-by-case basis. Borough of Kutztown v. DEP, 2001 EHB 1115, 1121; Ford City v. DER, 1991 EHB 169, 172. As we recently pointed out in Redbank Valley Municipal Authority v. DEP, 2006 EHB 813, 819, not all Department communications fall neatly into appealable and non-appealable categories. We discussed the many factors to consider in determining whether a Department action is appealable in Borough of Kutztown v. DEP.  In deciding whether a Departmental letter constitutes a final “action” or “adjudication,” we consider such factors as the wording of the letter, the substance, meaning, purpose, and intent of the letter, the practical impact of the letter (with an eye to what actions a reasonably prudent recipient of the letter would take in response to the letter), the regulatory and statutory context of the letter, the apparent finality of the letter, what relief the Board can offer (i.e., the practical value of immediate Board review), and any other indicia of a letter’s impact upon its recipient’s personal or property rights.  2001 EHB at 1121. 

In terms of administering the Bad Actor provision in Act 13, what type of enforcement action would constitute a "final action"?  Based on my knowledge of EHB case law, inspection reports that identify violations, Notices of Violation, and proposed penalty assessments are not generally considered "final actions" that are appealable to the Board.  Thus, they generally would not trigger the Bad Actor provision (although you’d be smart to look at the language as Judge Labuskes instructed).   That significantly limits the universe of "continuing violations" the Department can use to invoke the Bad Actor provision in Act 13.   Some enforcement actions taken by the Department are clearly final actions that are appealable to the Board, such as orders and the issuance of a civil penalty assessment.    So those things would be fair game in terms of invoking the Bad Actor provision.  But even in the situation where the Department has issued an order, the invocation of the Bad Actor provision to deny a permit can be prevented if the recipient of the order files an appeal to the EHB and the Board issues a supersedeas (i.e., an injunction). 

So what should everyone take from all this?  First, there is a Bad Actor provision in the new Marcellus Shale law, known as Act 13.  Second, the use of the Bad Actor provision is entirely in the Department’s discretion, so it’s use can’t be forced by a third party.  Third, the invocation of the Bad Actor provision is limited in that the only kind of "continuing violations" that can be used against an applicant are those constituting "final actions"of the Department, which would, in all likelihood,  exclude violations noted in inspection reports, NOVs, and proposed penalty assessments.  Fourth, even with regards to "final actions", the Department has discretion to overlook the continuing violations if "the violation is being corrected to the satisfaction of the department."

The bottom line is stay in compliance and you won’t have to worry about the Bad Actor provision in Section 3211 of Act 13.  If you do fall out of compliance, take prompt action to fix it and cooperate with the Department and avoid having the Department issue an appealable order.  If all else fails and the Department hits you with an order that would constitute a final action, be aware that only the issuance of a supercedeas from the EHB will eliminate the possibility that the Department could use that order to deny a permit application filed under Act 13.