THE FOLLOWING ARTICLE WAS WRITTEN BY MITCHELL K. MORRIS AND WAS PUBLISHED IN LAW360 ON OCTOBER 11, 2019. CLICK HERE TO VIEW THE ARTICLE ON LAW360’S EXPERT ANALYSIS SECTION.
Recently, the Western District of Virginia issued a decision in Southern Appalachian Mountain Stewards v. Red River Coal Co. Inc. finding that a mine operator was not liable under the federal Clean Water Act and other statutes for certain nonpermitted discharges, pursuant to the so-called “permit shield” defense under the CWA.[1]
At first blush, the decision appears to be a technical one under the federal water pollution laws, having nothing to do with tort law generally. But the court’s reasoning raises a deeper, more far-reaching question relevant to any business operating in a highly regulated space: When, if ever, can reliance on government regulators provide a defense to civil liability?
Discharges subject to the CWA require a permit. The U.S. Environmental Protection Agency has delegated the issuance of such permits in Virginia to Virginia’s Division of Mined Land Reclamation. The DMLR issued a permit to the mine; a disagreement arose between the EPA and the DMLR regarding the scope of that permit.
The EPA ultimately told the mine it was violating the CWA by making unpermitted discharges. The plaintiff brought suit against the mine based on those alleged violations. The district court held that the discharges in question were not covered by the mine’s permit — but that the CWA’s “permit shield defense” nevertheless insulated the mine from liability because the mine had disclosed the discharges, and “DMLR was aware of those discharges but chose not to list them in the Permit.”[2]
The following aspect of the court’s reasoning provides the real food for thought for non-CWA litigants:
The undisputed evidence demonstrates that Red River has done what DMLR has told it to do. Red River should be able to rely upon the clear directives of its regulators without being subjected to liability. The EPA disagrees with what the DMLR has required, but it would be unfair to place Red River in the middle of a battle between federal and state regulators.[3]
As a matter of fundamental fairness, shouldn’t the same be true for any business operating pursuant to the “directives” of state or federal regulators?
“Regulatory compliance” is not usually a viable defense to civil tort liability. But there is a meaningful distinction between compliance with a passive regulatory standard, and acting pursuant to or in accordance with direct, active government supervision or guidance, as was the case in Southern Appalachian Mountain Stewards. While the former may not shield a civil defendant from tort liability, a compelling argument exists that the latter should, at least in some situations.
The United States Supreme Court has long recognized in criminal law a constitutional prohibition against “an indefensible sort of entrapment by the State — convicting a citizen for exercising a privilege which the State had clearly told him was available to him.”[4] It has similarly held that “[o]rdinarily, citizens may not be punished for actions undertaken in good faith reliance upon authoritative assurance that punishment will not attach.”[5]
Thus, in United States v. Pennsylvania Industrial Chemical Corporation,[6] the Supreme Court overturned an industrial defendant’s criminal conviction resulting from its reliance on the U.S. Army Corps of Engineers interpretation of a federal pollution law. The court ruled that the defendant “had a right to look to the Corps of Engineers’ regulations for guidance” because the Corps is the “responsible administrative agency.”[7]
Although the Corps’ “rulings, interpretations, and opinions” are not legally controlling, “they do constitute a body of experience and informed judgment to which litigants may properly resort for guidance.”[8] The court remanded the case and directed the trial court to allow the defendant to present evidence regarding its reliance on the Corps’ statutory interpretation.
The protections afforded criminal defendants do not always, if ever, translate into the civil realm, and particularly the common law. But there are examples of courts applying essentially the same due process principles underlying the criminal cases discussed above to invalidate noncriminal penalties.
Perhaps the highest profile example is Federal Communications Commission v. Fox Television Stations Inc.,[9] where the Supreme Court held that the FCC could not levy forfeiture penalties for indecency against broadcasters who had relied upon preexisting FCC policy, and, therefore, did not have fair notice of the FCC’s new interpretation.
Fox Television Stations and Southern Appalachian Mountain Stewards arose from entirely different circumstances, involved different statutes and were decided on different grounds at opposite ends of the federal judicial spectrum. But Fox Television Stations nonetheless seems animated by the same principle so aptly stated by Judge James Jones seven years later in Southern Appalachian Mountain Stewards — that a person “should be able to rely upon the clear directives of its regulators without being subjected to liability.”
Litigants should press for that principle to be applied equally in all contexts where they face potentially devastating deprivations of property at the hands of the state, including liabilities imposed by the common law tort system. Anyone who reads the news knows that the deprivations companies face in the tort system dwarf the civil, and even criminal, penalties available for the same conduct.
Nor should there be any debate that common law jury verdicts are state action that should be subject to the same constraints applied to, say, a bureaucratic agency seeking to levy a civil penalty under some provision of the Code of Federal Regulations.[10] The Supreme Court recognized decades ago that “state regulation can be as effectively exerted through an award of damages as through some form of preventive relief. The obligation to pay compensation can be, indeed is designed to be, a potent method of governing conduct and controlling policy.”[11]
So, what might this defense look like in the tort context, and when might it be asserted? Imagine a multimillion-dollar personal injury case involving some allegedly dangerous condition or instrumentality that was inspected or otherwise considered by a regulator in the weeks or months before the plaintiff’s accident. The regulator took no issue, or even went so far as to say that it was A-OK.
The plaintiff then sues over the condition, asserting common law negligence and negligence per se based on the very regulation the regulator considered. Under the circumstances, the defense is not mere regulatory compliance in the abstract, but rather, “The government specifically told us that it was OK!”
Litigants should be entitled to reasonably rely on regulatory guidance, and, in appropriate cases, assert it as complete defense to civil liability. Due process demands as much.[12]
Mitchell K. Morris is a member of Butler Snow LLP.
The opinions expressed are those of the author(s) and do not necessarily reflect the views of the firm, its clients, or Portfolio Media Inc., or any of its or their respective affiliates. This article is for general information purposes and is not intended to be and should not be taken as legal advice.
[1] Southern Appalachian Mountain Stewards v. Red River Coal Co. Inc. , No. 2:17CV00028, 2019 WL 4674318, at *11 (W.D. Va. Sept. 24, 2019).
[2] Id. at *11.
[3] Id. at *12.
[4] Raley v. State of Ohio , 360 U.S. 423, 426 (1959).
[5] United States v. Laub , 385 U.S. 475, 487 (1967)
[6] United States v. Penn. Indus. Chem. Corp. , 411 U.S. 655 (1973).
[7] Id. at 674.
[8] Id.
[9] Federal Communications Commission v. Fox Television Stations Inc. , 567 U.S. 239 (2012).
[10] See, e.g., United States v. Hoechst Celanese Corp. , 128 F.3d 216, 224-30 (4th Cir. 1997).
[11] Cipollone v. Liggett Grp. Inc. , 505 U.S. 504 (1992) (quoting San Diego Building Trades Council v. Garmon , 359 U.S. 236, 247 (1959)).
[12] See State Farm Mut. Auto. Ins. Co. v. Campbell , 538 U.S. 408, 418 (2003) (quoting Pac. Mut. Life Ins. Co. v. Haslip , 499 U.S. 1, 59 (1991) (O’Connor, J., dissenting)) (“[T]he point of due process — of the law in general — is to allow citizens to order their behavior”).