Ultra Vires Case Study

Discussion
Ultra Vires Issues
Cueto may have a potential claim that the OER’s interpretation of the enabling act and ensuing actions exceeded the authority delegated to the OER by Congress. The OER’s notice of liability refers to Section (3) of the statute, and requires the OER to provide to Cueto “notice of the factual basis for the finding.” However, Cueto may argue that the OER failed to comply with this provision of their own enabling statute. The OER’s notice simply related to Cueto that their liability was assumed due to Cueto’s ownership of the pipeline. If Cueto was to challenge the notice per Sections (3) and (4) of the statute, it is highly unlikely the OER’s only evidence at the hearing would be Cueto’s ownership of the pipeline. It is reasonable to interpret that the “factual basis” described in the statute for Cueto’s liability that would be required for the OER to prevail at the hearing is the same or similar factual basis the OER must provide to a responsible party upon notice. If simply noting Cueto’s ownership of the

pipeline was a sufficient “factual basis” for the OER’s action, Cueto is unable to make an informed decision to challenge the notice in twenty days. Beyond this, the OER’s investigation of the spill extended for 18 months. It is reasonable to expect that including a “factual basis” in the notice would include at least some measure of the OER’s findings besides simply citing ownership.
The OER will likely claim that their actions fall within the powers delegated to them by Congress, and that they are not violating the statute. Chevron U.S.A., Inc. v. Natural Resources Defense Council, Inc., 467 U.S. 837 (1984), sets forth the legal test for determining whether to grant deference to a government agency's interpretation of a statute which it administers. “First, always, is the question whether Congress has directly spoken to the precise question at issue. If the intent of Congress is clear, that is the end of the matter; for the court, as well as the agency, must give effect to the unambiguously expressed intent of Congress.” Chevron U.S.A. v. NRDC, 467 U.S. 837 (1984), 842–843.
Here, it is difficult to say with certainty Congress’s intent in the words “factual basis.” However, Cueto has a colorable argument that this phrase is highly ambiguous in the statute. No definition is included in the statute for what constitutes a “factual basis.” Furthermore, looking at the plain language of the statute, it is reasonable to conclude that the requirement for providing a responsible party the factual basis for their liability, and the subsequent election to contest the notice or not, is to inform the party of the evidence levied against them. It is unreasonable to argue that Congress intended the OER to conceal virtually the entirety of the evidence and facts gathered during their investigation, and that simply noting the recipients ownership of the pipeline as a sufficient “factual basis” to form their decision whether to challenge or accept the notice.
Now that Cueto has a colorable argument that Congress has not explicitly spoken to this issue, the court would move to the second part of the Chevron analysis. “. . . if the statute is silent or ambiguous with respect to the specific issue, the question for the court is whether the agency's answer is based on a permissible construction of the statute.”  Chevron U.S.A. v. NRDC, 467 U.S. 837 (1984), 842–843. Here, Cueto likely has a colorable argument that the OER permissibly construed the ambiguous “factual basis” requirement of the statute. It is highly unfair to Cueto for a regulatory agency to be able to engage in 18 months of investigation and not provide any of this information to Cueto before giving them the opportunity to challenge or accept the penalties. By doing so, the agency in effect requires identified responsible parties to challenge the notice, and furthermore do so with less than three weeks of preparation and no knowledge of the factual basis for the OER’s notice. Beyond this, the APA requires notice of pending adjudicatory action that is sufficiently detailed to enable the private party to prepare for a hearing; there is little reason, in this instance, to “surprise” Cueto with the facts behind the OER’s decision. 5 U.S. Code § 554. This inflicts a significant hardship on Cueto, and requires a party to incur legal expenses and likely conduct a duplicative investigation in a short span of time. In effect, under the OER’s interpretation of the statute, Cueto must make its decision whether to challenge or accept the notice without sufficient factual basis. It is little hardship on the OER to share facts already in their possession that would presumably come up at the post-notice hearing with the recipient of the notice, and expecting the recipient to potentially accept their punishment without notice of the factual basis for their liability is highly unreasonable.

Due Process Issues
Cueto may have a potential claim for violation of Due Process. Due process is required before the state may deprive property from a private party, including private companies; due process requires fair notice of reasonably specific charges against the defendant so that he or she has an opportunity to prepare and present an adequate defense and be heard. Jackson v. Metro Edison Co., 419 U.S. 345 (1974). The APA requires notice of pending adjudicatory action that is sufficiently detailed to enable the private party to prepare for a hearing. 5 U.S. Code § 554.
Next, the court will consider at what point in the agency’s decision-making process the process is implemented. At minimum, a party must receive 1) notice and 2) at least some opportunity for response or comment. Here, the OER has concluded that Cueto is liable for the spell and levied the subsequent fines and penalties in the notice. While Cueto may challenge the notice upon review, Cueto may still have a colorable argument that the OER failed to meet the requirement for an opportunity for response or comment, “however brief or informal.” Londoner v. City of Denver, 210 U.S. 373 (1908). To counter, the OER may point to Bi-Metallic Inv. Co. v. Colorado, 239 U.S. 441 (1915). However, unlike in Bi-Metallic, no burdensome hardship is inflicted on the state in providing Cueto an opportunity to speak prior to levelling fines; similiarly, this notice affects Cueto alone, and is not being applied to a broad class, nor does Cueto have the ability to speak in a different way (i.e. electing new officials per Bi-Metallic).
Finally, the court will determine what manner of process is due. The Supreme Court has employed a three-part test for determining what process is due. Mathews v. Eldridge, 424 U.S. 319 (1976). First, the private interest that will be affected by the official action is considered; here, Cueto is susceptible to a large fine despite the OER’s failure to provide a factual basis for the fine, as well as liable for the costs of the cleanup and reparations to landowners. While not a “fundamental” interest like in Goldberg v. Kelley, 397 U.S. 254 (1970), the financial deprivation of property inflicted on Cueto would be severe. While Cueto cannot argue the deprived interest is an essential liberty or “brutal need,” the interest is by no means inconsequential considering the gravity of the potential penalties. At the very least, Cueto must be afforded some degree of due process, even if the deprived interest is simple property. Arnett v. Kennedy, 416 U.S. 134 (1974).
Second, the court will consider the risk of an erroneous deprivation of the private interest through procedures used. Here, the OER has spent 18 months privately investigating the spill. Beyond this, Cueto’s only safeguard against the OER is twenty days to formulate a challenge to this extensive investigation and notice. While Cueto’s interest may solely be financial, Cueto may make a compelling argument against the OER’s failure to provide the factual basis for Cueto’s liability to Cueto. Hamdi v. Rumsfeld, 542 U.S. 507 (2004).
Finally, the government’s burden in providing this information to Cueto is unlikely to be found unduly burdensome. The OER has already completed the investigation, and demanding the OER provide the pertinent facts the OER already possesses (or lack thereof), and the ability for Cueto to construct a defense, is neither unduly burdensome nor unfair to the government.
There are potential bars to Cueto’s defense, however. First, the OER’s invocation of “emergency” status for the oil spill, and thus any due process afforded Cueto could appropriately be reserved post-decision. N. Amn. Cold Storage Co. v. Chicago, 211 U.S. 306 (1908); Barry v. Barchi, 443 U.S. 55 (1979). However, in every recent case besides Barchi, at least a modicum of due process was afforded the party prior to the agency decision. In Arnett and Matthews, the injuries were purely financial, and quickly resolved upon review post-decision; however, here Cueto faces substantial, potentially devastating, penalties—the cost of reparations to landowners and cleanup is extensive. Beyond this, Cueto will likely need to expend money and resources to produce a cleanup plan in the interim, even if they are absolved upon review. Finally, even if absolved upon review, the injury to Cueto’s public reputation (and subsequently, customer retention, stock value, etc.) upon being declared liable for the spill prior to review is not inconsequential, and are unlikely to be quickly reparable. Wisconsin v. Constantineau, 400 U.S. 433 (1971). Beyond this, the OER may be able to assert that reserving Cueto an opportunity to challenge the notice and belay the OER’s actions until resolution appropriately provide due process.

Potential Strategies for Cueto
Cueto’s primary action should be to demand a hearing pursuant to the OER’s notice.

Except as otherwise provided by statute, the proponent of a rule or order has the burden of proof. 5 U.S.C. § 556(d). Here, the OER has not provided Cueto with the factual basis for their action; however, regardless of the evidence the OER possesses, Cueto is still entitled to adjudication per the enabling statute. Cueto would be unwise to accept the OER’s penalties without demanding the OER present their evidence (or lack thereof) of Cueto’s liability. Additionally, a party is entitled to present his case or defense by oral or documentary evidence, to submit rebuttal evidence, and to conduct such cross-examination as may be required for a full and true disclosure of the facts. 5 U.S.C. § 556(d). Even if the OER does present compelling evidence, Cueto has the opportunity during adjudication to potentially disprove or scrutinize the OER’s

findings.
Immediately filing a lawsuit would be unwise without first exhausting Cueto’s opportunity to make the OER provide a factual basis. While Cueto may have colorable due process and ultra vires arguments, if the OER’s evidence is insubstantial, the OER may be more receptive to settling the dispute rather than bear the risk or expense of adjudication or a Cueto lawsuit. Cueto would be wise, nonetheless, to respond to the OER with their challenges and intent to fight the OER’s action. Ultimately, Cueto’s long-term strategy will likely hinge on the evidence available to the parties. If the OER is receptive to settling the dispute, Cueto may wish to bear the financial hit up front to end the matter. Regardless, Cueto would be unwise to accept the OER’s notice without contest.