In the latest development in parallel cases captioned EQT Prod. Co. v. Department of Environmental Protection which have been moving through Pennsylvania state courts and the Environmental Hearing Board ("EHB") since early 2014, the Commonwealth Court of Pennsylvania affirmed the EHB’s assessment of penalties totaling $1,137,295.76 against the hydraulic fracturing company, EQT Production Company (“EQT”), for contamination to groundwater arising from a leaking wastewater impoundment. EQT Prod. Co. v. Dep’t of Envtl. Prot., No. 844 C.D. 2017, 2018 WL 4289310 (Pa. Commw. Ct. Sept. 10, 2018). Specifically, on September 10, 2018, the Commonwealth Court held that the EHB did not commit an error of law when it held that, under Clean Streams Law (“CSL”), penalties could be assessed for every day that contamination entered the groundwater from soils “through fundamental hydrologic principles,” even if the initial spill event had ceased and there was no direct evidence of daily transmission of contamination from soil to groundwater.

The case stems from groundwater contamination occurring in 2012 resulting from EQT’s leaking hydraulic fracturing waste water impoundment. EQT discovered the leak in April of 2012, but did not start to empty the impoundment or address the leaks until mid-June, and then did not excavate the contaminated soil under the impoundment until late September. In 2014, DEP proposed to EQT that it enter into a Consent Decree to pay penalties of $4.5 million based on a daily assessment of up to $10,000 per day for every day that contamination migrated from soil to groundwater (the “soil-to-groundwater” theory), and from one groundwater source to another (the “groundwater-to-groundwater” theory), and further contended that penalties could continue to accrue as long as pollution from the impoundment continued to impact the groundwater. EQT refused to enter into the Consent Decree and initiated a declaratory judgment action in the Commonwealth Court seeking a determination that a violation of the CSL for which daily penalties may be assessed occurs only on the day a person first allows an unauthorized discharge into the waters of the Commonwealth.

Soon after the declaratory judgment action was filed, DEP pursued its claim against EQT, filing with the EHB a complaint for the assessment of over $4 million in civil penalties. In May of 2017, the EHB reduced the penalty to a $1.1 million fine, finding that the CSL allowed for daily penalties under DEP’s “soil-to-water” theory and that EQT’s post-release behavior evinced a conscious disregard of the fact that its conduct could result in a violation of the CSL and significant harm to the waters of the Commonwealth. DEP v. EQT Prod. Co., No. 2014-140-CP-L, 2017 WL 2399756 (EHB May 26, 2017). The EHB did not, however, assess penalties for any period after the excavation of the contaminated soils, on the basis that “active new releases after September 27 would have continued but at a very low level [and] EQT’s level of cooperation and attention to the problem increased steadily.” Id.

The declaratory judgment action made it to the Pennsylvania Supreme Court twice, first on a procedural argument and then on the merits. As we reported in April of this year, in the second decision, the Pennsylvania Supreme Court rejected DEP’s “water-to-water” theory, agreeing with  EQT and the Commonwealth Court that a daily violation did not occur due to the “mere presence” of contaminants in the groundwater.  This effectively capped the daily damages upon excavation of the impacted soils as the EHB had done in the penalty action, albeit for different reasons.  However, because the soil-to-groundwater theory was not raised with the Supreme Court on appeal, the Court did not address it, but instead suggested that this issue was better left for resolution in EQT’s challenge to the EHB’s penalty assessment.

In its appeal to the Commonwealth Court of the EHB’s penalty assessment, EQT argued that DEP’s evidence establishing daily violations after June 14, 2012, when it finished draining and patching the leaking impoundment, was insufficient to support the penalty assessment. But the Commonwealth Court, in its en banc decision on September 10, 2018, disagreed and upheld the penalty determination as reasonable, finding that DEP’s expert testified to a reasonable degree of scientific certainty that even after the impoundment was drained and patched, contaminants present in the soil beneath it continued to impact the groundwater, and an assessment of daily penalties until the end of September of 2012, when the contaminated soil was finally excavated, was proper. The Commonwealth Court also agreed with the EHB’s its determination that EQT’s violations were indeed reckless, finding that it was supported by the record evidence showing that EQT essentially dragged its feet in responding to the leak. Looking at these factors and considering EQT’s arguments, the Court held it could not conclude that the EHB’s assessed civil penalty “does not reasonably fit the violations of The Clean Streams Law in this case.” As to the legal argument that daily penalties should not accrue under the soil-to-groundwater theory, the Commonwealth Court merely stated that the argument was “without merit,” at least to the extent that EQT contended that the Pennsylvania Supreme Court’s decision dictated otherwise.

As a result of this decision, one can expect DEP to be further emboldened, and to not hesitate to assess daily penalties for each day that contaminated soils are left in place and not excavated, at least where application of “fundamental hydrologic principles” leads to a conclusion that the contamination continues to leach into groundwater.

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