Pennsylvania Environmental Hearing Board issues trinity of opinions on fee shifting under the Clean Streams Law

On December 12, 2013, the Pennsylvania Environmental Hearing Board (EHB) delivered three opinions deciding several applications for attorney’s fees and costs under the Pennsylvania Clean Streams Law (CSL).  Befitting the season, the EHB stuffed some of these stockings with gifts while filling others with coal.  Collectively, the three opinions shed new light on how the EHB will evaluate applications for attorney’s fees and costs under the CSL and provide some practical lessons for parties who intend to file these applications in the future.

Background

As a general rule (often referred to as the American Rule), each party to litigation is responsible for its own counsel fees and costs “absent bad faith or dilatory, obdurate or vexatious conduct.”  However, this general rule may be modified by statute.  The CSL is one example of a statute that has modified this general rule.

CSL Section 307(b), 35 P.S. § 691.307(b), provides that the EHB, “upon the request of any party, may in its discretion order the payment of costs and attorney’s fees it determines to have been reasonably incurred by such party in proceedings pursuant to this act.”  Pennsylvania courts have observed that this fee-shifting provision is intended “to justly compensate parties who have been obliged to incur necessary expenses in prosecuting lawful claims or in defending against unjust or unlawful ones.”

For many years, in evaluating whether a fee award was appropriate under CSL Section 307(b), the EHB strictly applied a four-part analysis known as the Kwalwasser test, according to which “(1) a final order must have been issued; (2) the applicant for the fees and expenses must be the prevailing party; (3) the applicant must have achieved some degree of success on the merits; and (4) the applicant must have made a substantial contribution to a full and final determination of the issues.”

Then, in Solebury Twp. v. Dep’t of Envtl. Prot., 593 Pa. 146 (Pa. 2007), the Pennsylvania Supreme Court held that the EHB’s application of the Kwalwasser criteria to preclude counsel fees where there was no formal judgment “was too narrow in view of the broad language of Section 307 and the public policy favoring liberal construction of fee-shifting provisions.”  The Solebury decision created some chaos in what had previously been a reasonably well-settled area of the law.  The three opinions issued in December are the latest chapter in the EHB’s ongoing efforts to restore order to the world of CSL fee-shifting in the wake of the Solebury decision.

In all three of the opinions, the EHB announced a three-step process, which it appears will govern future petitions filed under CSL Section 307(b):

Step one is a determination of whether the fees have been incurred in a proceeding pursuant to the [CSL].  Step two is a determination of whether the applicant has satisfied the threshold criteria for an award.  If we determine that a party seeking fees meets the requirements of the first two steps, we then move to step three, a determination of the amount of the award.

Although employing the same three-step process, the three EHB opinions reached wildly different results.  A discussion of the three opinions, along with some of the lessons they have to offer, follows.

Crum Creek Neighbors v. DEP and Pulte Homes of PA, LP, EHB Docket No. 2007-287-L

A group appealed a permit authorizing stormwater discharges associated with the construction of a housing development.  The EHB suspended and remanded the permit after finding that DEP had not properly investigated whether the project would degrade an Exceptional Value stream.  On remand, the permittee conducted additional studies demonstrating that the project would not degrade the stream, and DEP lifted the permit suspension.  The EHB granted almost all of the fees and costs requested by the group that had appealed the permit.

Lessons:

  • Where a party obtains a successful result on the merits, the EHB will continue to apply the Kwalwasser test in determining whether to award fees and costs.
  • The EHB may award fees even where the attorneys and expert witnesses work on a contingency-fee basis.
  • A party may obtain fees and costs for requiring DEP to follow its regulations even when doing so fails to result in any substantive changes to the underlying project.

Citizens for Pennsylvania’s Future v. DEP and Chesapeake Appalachia, LLC, EHB Docket No. 2011-168-M

A group appealed three related approvals for the construction of a temporary aboveground waterline supporting gas well development and operations.  Shortly after the EHB denied its motion to dismiss certain objections asserted in the appeal, the permittee surrendered its permit and related approvals.  Several months later, DEP cancelled the permit, and the EHB entered an order discontinuing the appeal.  The EHB denied all of the fees requested by the group that had appealed the approvals.

Lessons:

  • Where there is no final ruling on the merits, the EHB will apply the catalyst test in determining whether to award fees and costs.
  • Under the catalyst test, the applicant must show (1) that DEP provided some of the benefit sought in the appeal; (2) that the appeal stated a genuine claim; and (3) that the appeal was a substantial or significant cause of DEP’s action providing relief.
  • The EHB may decide not to award fees where it concludes that the appeal played no role in a decision to surrender or cancel a permit.  (Notwithstanding the timing of the surrender in this case, the EHB found, based on the evidence presented at a hearing on the application, that the permittee’s decision was the result of operational changes and other factors unrelated to the appeal.)

Hatfield Township Municipal Authority, et al. v. DEP, EHB Docket No. 2004-046-B (Consolidated with 2004-045-B and 2004-112-B)

DEP refused to withdraw a Total Maximum Daily Load (TMDL) that it had prepared and submitted for a stream impaired by nutrients until more than three years after learning that it was flawed.  The EHB granted some of the fees and costs requested by several operators of publicly owned treatment works whose appeal led to the discovery of an error in the modeling DEP used to develop the TMDL.

Lessons:

  • The EHB will use its broad discretion to ensure that any fee award is reasonable.
  • The EHB may reduce fees to account for activities that are only tangentially related to the litigation and may deny fees for activities that are completely unrelated to the litigation.
  • The EHB may deny fees where a party does not provide all of the information required under 25 Pa. Code § 1021.182(d) or where the information provided lacks sufficient detail.  (If a party redacts some of this information in order to maintain a privilege, it should submit an unredacted version for in camera review if it wishes to recover its fees for the underlying work.)
  • The EHB may reduce (in this case, by 20%) the fees of a party that elects to use its own counsel and experts instead of entering into a joint representation arrangement with other similarly situated parties and may further reduce those fees (in this case, by 33%) where the party does not play an active role in the litigation.
  • The EHB may reduce hourly rates if it finds that they are in excess of customary commercial rates for a particular class of client (in this case, for municipal clients).
  • The EHB may substantially reduce the amount of hours requested (in this case, by 50%) if it finds that the amount grossly exceeds the reasonable amount of hours that should have been required.
  • The EHB may in the future reject evidence that consists solely of limited affidavits from counsel requesting its own fees.

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