Eroding Ice: Fourth Circuit’s recent decision limiting “Arranger Liability”

Posted on April 29, 2015 by George von Stamwitz

A plaintiff seeking to characterize a business transaction as “disposal” under CERCLA may now feel like a polar bear looking for a patch of thick ice. 

On March 20, 2015, a divided panel on the Fourth Circuit Court of Appeals, in Consolidation Coal Co. v. Ga. Power Co., affirmed a District Court's ruling holding that transformer sales did not evidence an intent on to dispose of hazardous materials, and therefore did not support a finding of “arranger liability” under “CERCLA” even when words like “scrapping” and “disposal” were used. Looking to the framework of the Supreme Court’s 2009 ruling in Burlington Northern Burlington Northern and Santa Fe Railway Co. v. United States and the Fourth Circuit’s 1998 ruling in Pneumo Abex Corp. v. High Point, Thomasville & Denton Railroad Co., the 2-1 majority held that while a party who sells a product that contains hazardous substances also “‘intends’ to rid itself of that hazardous substance in some metaphysical sense… [an] intent to sell a product that happens to contain a hazardous substance is not equivalent to intent to dispose of a hazardous substance under CERCLA.” Rather, in the court’s words, “there must be something more.” 

Georgia Power, a major Georgia electrical utility that supplies power to most of Georgia, sold used electrical transformers containing PCBs to Ward Transformer Company. Ward repaired and rebuilt used transformers for resale. In the process, Ward’s Raleigh, North Carolina, facility became contaminated with PCBs. After the Ward site was added to the National Priorities list, Consolidated Coal Company and another company bore most of the cleanup costs as PRPs under CERCLA, spending approximately $17 million each in cleanup costs. 

Any attorney who has ever tried or been involved with a CERCLA case knows that Georgia Power, given these facts, looks like a prime target to sue for contribution.

In their appeal to the Fourth Circuit Court of Appeals, Consolidated Coal argued the District Court improperly considered the low value of the used transformers and Ward’s ability to profit from their resale. This, Consolidated Coal contended, overlooks the possibility that Georgia Power had a “dual intent” to make money from the sales of transformers and thus had an intent to dispose of the hazardous materials as an arranger. Thus, according to Consolidated Coal, Georgia Power’s “secondary motive” for the transformer sales -- to dispose of PCBs –- was sufficient to create arranger liability under CERCLA. 

The Court concluded that there was no direct or substantial evidence that Georgia Power intended, “even in part,” to arrange for disposal. Furthermore, the use of the words “scrapping” or “disposal” in Georgia Power’s documents had “limited bearing” on their intent to “dispose” of transformers as the word is construed in CERCLA, let alone the PCBs within those transformers. The Court was also not swayed by the fact that the transformers were sold in lots and that some of the transformers were partially disassembled, or that old oil was required to be removed from the transformer as part of the reconditioning process. According to the Court, all Georgia Power did was to sell its transformers to the highest bidder.

While these cases remain fact sensitive, the trend lines suggest CERCLA plaintiffs alleging “disposal” may be on thin ice.

My Brief Career as an Environmental Tax Lawyer

Posted on April 28, 2015 by Michael McCauley

On April 15 of this year, I thought about the following quote:

 

"Taxes are what we pay for civilized society."

--Oliver Wendell Holmes Jr.

U.S. Supreme Court Justice

 

And then I reminisced a bit.

My career as a federal tax lawyer was very brief. About 25-30 years ago, I represented a client which thought it was paying too much in "Superfund" taxes.  These taxes are levied on companies which manufacture and produce chemicals. The money is then used by U.S. EPA and others to fund hazardous waste disposal site clean-ups.

I certainly was not a tax lawyer. But one of our senior partners who was in charge of managing work for a chemical company client needed help. He was an excellent tax lawyer, but he said he knew nothing about Superfund taxation. Since I was doing a lot of Superfund clean-up work at the time, I drew the short straw for arguing the merits of this matter before the IRS.

I can't remember now whether the company had a good legal basis for contesting the tax. It might have had something to do with the fact that the client company recycled some amount of used chemicals into making new product. Thus, the Company believed, some of the same chemicals were taxed twice -- once when they were originally manufactured and then again when they were recycled into new product. I do remember that the client's top management thought that the Superfund tax on chemical production in general was very "unfair." [The client never got to the point of considering the "fairness" of the strict, retroactive, joint and several liability regime for generators under the Superfund Law.]

The Company President and I went out to Washington to discuss the merits of our case with officials of the IRS and the Treasury Department. We got out of our cab in front of the Internal Revenue Service Building on Constitution Avenue one bright sunny morning in April. I looked up at the imposing building. Emblazoned in granite across the top of the building was the above quote from Justice Holmes.

I turned to my client and asked him to look up and read the quote. Then I said, "Jon, this is why we are not probably going to win our case here today." And we didn't.

The Company was not interested in pursuing a judicial appeal. So ended my career as a tax lawyer.

Perhaps a Corps Jurisdictional Interpretation is Final Agency Action After All

Posted on April 16, 2015 by Seth Jaffe

After Sackett, the question on everyone’s mind was “How far does it go?”  The first test of that question was the decision by the 5th Circuit Court of Appeals – not known as a bastion of liberalism – in Belle Company v. Corps of Engineers, holding that a Corps jurisdictional determination is not final agency action subject to judicial review.  Late last week, however, in Hawkes Co. v. Corps of Engineers, the 8th Circuit disagreed, creating a circuit split.

As we noted at the time, the 5th Circuit decision in Belle focused on the differences between the Sacketts’ position facing an enforcement order and that of Belle Company facing a Corps JD.  As the 5th Circuit emphasized, the JD did not require Belle Company to do anything.  Nor did the JD expose Belle Company to penalties.  Nor did it prejudice Belle Company’s ability to obtain a permit.  Nor did it include a finding of a CWA violation.

The 8th Circuit took a different tack, focusing instead on the one great, glaring similarity between the enforcement order in Sackett and the JD in Hawkes Co. – in both cases, the Corps’ decision, as a practical matter, defined the property owner’s rights and ended the proceeding.

It’s not obvious to me that the Supreme Court will take the case, even with the circuit split.  I don’t think that the Court likes these cases.  On the other hand, it is obvious that the conservative wing of the court sees Sackett as a very important decision and there could well be four votes to decide the issue at this point.

If the Court does take the case, all bets are off.  I think that the 5th Circuit still has the better of the legal argument, and I expect that will be sufficient for all but the most ardent property rights advocates on the Court.  Whether there are five ardent property rights advocates on the Court is what remains to be seen.

Can Environmental Lawyers Save The Earth

Posted on April 8, 2015 by Charles Tisdale

What is your favorite place on Earth.  The beach.  The mountains.  A hiking trail to a waterfall.  A river or lake.  People are drawn to water, mountains, and forests.  Being in nature switches off the analytic left brain, turns on the creative right brain, and activates the heart and body.  Experiencing the environment is like mindful meditation. 

What is the biggest challenge the world faces?  Controlling technology.  Curing diseases.  Making the world safer.  Preventing a nuclear disaster.  Overcoming poverty.  Preventing another economic depression.  Reducing illiteracy.  We can address many of these social problems.  However. we cannot control nature.  We have to learn to live with nature.  If we cannot learn to live with nature. we will destroy the earth and ourselves.

Sea levels are rising faster and glaciers are melting more rapidly now than in 1950.  Hurricane Katrina and Super Storm Sandy are powerful reminders that man cannot control nature.  Record snowfalls in the northeast shut down many activities in 2014 and 2015.  California is in a prolonged drought.   

In the 1970’s, America’s concern for the earth led Republicans and Democrats to create the laws and regulations which are universally recognized as the most successful environmental laws in the United States.  Other countries used these laws as models.  These laws include the 1970 Clean Air Act, the 1972 Clean Water Act and the 1976 hazardous waste law.  Richard Nixon created EPA in 1970.  April 22, 1970 was the first Earth Day.

The Clean Air, Clean Water and hazardous waste laws are still used to limit the discharge of pollution into the environment.  However, science has discovered new environmental problems and sources of pollution which require amendments to the 1970’s laws or new regulations.

Congress will not amend the 1970’s laws to give EPA the authority to control new sources of pollution.  Congress opposes new regulations proposed by EPA.  Many legislators contend that additional pollution controls will bankrupt American industry because other countries can make cheaper products since their industries do not have to pay for pollution controls.

What motivated Congress to create the Clean Air, Clean Water and hazardous waste laws in the 1970s?  I believe that powerful images of environmental crises  captured in photographs touched everyone, regardless of their political party.  (1) The Cuyahoga River catching fire near Cleveland in 1969.  (2) Chattanooga air pollution so dark that headlights were necessary to see at noon on a sunny day.  (3)  Containers leaking hazardous waste into the Valley of the Drums in Kentucky.

Has our concern for the earth disappeared?  No.  Businesses and citizens are finding sustainable solutions to environmental problems.  Recycling saves money.  Businesses and citizens will not buy unhealthy products.  Consumers want utilities to use nature’s energy: sun, wind and water.  Local farms and gardens provide more of our food.

Americans are still concerned about the earth.  Scientists tell us that emissions from cars cause air pollution which prevents children from playing outside on hot sunny days in Atlanta, Houston and Los Angeles.  Runoff from cities and farms causes pollution which makes some rivers unsafe for swimming.  Why have our concerns and new scientific discoveries not led Congress to take actions to address today’s most serious environmental issues?  How can we educate our leaders and generate the consensus that leads to support of new pollution controls.  What are the actions, the events and the pictures that will motivate Americans to find the common understanding needed to agree on new laws and regulations.

Environmental lawyers can save the earth.  Why and How?

Why?

Environmental lawyers care about the environment.  We may fight about how clean is clean.  We may disagree on how stringent an air or water discharge standard must be.  But we all want to reduce pollution to levels that protect human health and the environment and are cost effective.

How?

(1)        Education – Environmental lawyers representing industry, EPA, states and environmental non-profits learn the relevant scientific facts and applicable laws.  Environmental lawyers can teach clients, legislators, agency officials, judges and the public.

Education is critical to reaching agreement on action to protect the environment.

(2)        Advocacy – Environmental lawyers are trained to marshal the facts and law and advocate for change in legislatures and courts.  Environmental lawyers are experts in relevancy and advocacy.

(3)        Facilitated Agreements – Environmental lawyers representing industry, government and environmental advocacy groups regularly resolve environmental disputes without litigation or soon after litigation is commenced.

Environmental lawyers know that litigation is a last resort.  Environmental lawyers can teach their clients that a mediated settlement is superior to giving up control of the outcome to a judge. 

(4)        Alternative Dispute Resolution – When the operator of a hazardous waste site cannot clean up the site, the parties who sent waste to the site must clean it up.  Environmental lawyers created a mediation process which enables each company to agree on a percentage of the cleanup cost without lengthy litigation.  The mediation process enables the companies to clean up hazardous waste sites faster and cheaper than EPA. 

(5)        Cleanup of Contaminated Property - In the 1980’s, environmental lawyers created the “Brownfield” process in which a natural biological solution is used to clean up contaminated property so that it can be used again.  The private sector taught EPA that waste sites could be reused rather than abandoned.

(6)        Private Sector Cleanup – Legislators and EPA set the pollution standards.  However, environmental lawyers and the private sector can clean up pollution faster and cheaper that any governmental agency.

(7)        Aid To Other Countries – Congress is concerned that new environmental regulations will be so expensive that U.S. businesses will not be able to compete with other countries who continue to pollute.  China is often used as an example.  Lawyers from the American College of Environmental Lawyers (ACOEL) have given free legal advice to the Chinese government on how to eliminate pollution through use of daily fines, a concept that was fundamental to enforcement of the 1970’s Clean Air and Clean Water laws.  Chinese companies are spending money on pollution control.  American industry will not be at a competitive disadvantage in pricing its products.

(8)        White Papers – In 2014, ACOEL lawyers prepared “White Papers” explaining the facts and law on proposed EPA water and air regulations.  Lawyers representing all views worked together on the White Papers.  The White Papers educate.  They do not advocate.  State environmental agencies have praised these White Papers.

Can Environmental Lawyers Save the Earth?  Yes we can.  We need to continue educating our children, our citizens, and our leaders in business, government, and nonprofits.  The 1970s environmental laws and regulations can be amended to save the earth.  

Further Advice from Air Act Andy: What A Difference A Year – And a Broken Foot – Make

Posted on April 6, 2015 by Andrea Field

On March 25, 2015, the Supreme Court heard 90 minutes of argument in Michigan v. EPA, No. 14-46. Briefing and argument focused on one aspect of EPA’s Mercury and Air Toxic Standards (MATS) Rule: whether EPA unreasonably refused to consider costs in determining if it is appropriate to regulate hazardous pollutants emitted by electric utilities. If you were unable to attend the argument but want to know more about it than you can learn from the press reports, then this “Advice from Air Act Andy” column is for you.

Question: Based on questions asked by the Justices during argument, many predict this will be a 5-4 decision, with Justice Kennedy possibly casting the deciding vote. What do you think?

Air Act Andy: I will preface my answer with the disclosure that a year ago I told my client there was virtually no chance the Court would choose to hear the MATS case. With my prognostication credentials thus firmly established — and keeping in mind that it is unwise (and usually embarrassing) to predict what the Court will do based on the questions asked at oral argument — let me say only that I came away from the argument sensing a 4-3-2 split in the Court.  I leave it to you, gentle reader, to infer more.

Question: Did Justice Breyer and his clerks spend endless hours hypothesizing scenarios for how EPA might have taken costs into account in developing the MATS Rule?

Air Act Andy: Without speculating on how many hours Justice Breyer and his clerks spent thinking about this, I note that he arrived at argument armed with a long list of questions suggesting he was troubled by the idea that EPA might regulate hazardous air pollutant emissions from electric utilities without any consideration of costs. In particular, he asked whether costs had been, or could be, considered in the subcategorization of electric generating units, even if costs were not considered in EPA’s initial listing of those sources.

Question: What did the parties make of Justice Breyer’s focus on subcategorization?

Air Act Andy: I don’t have to speculate here. The government made enough of Justice Breyer’s questions that, one day after argument, the Solicitor General filed a letter with the Court to provide information relevant to “questions pertaining to how EPA assesses whether to establish subcategories of sources” under the pertinent provisions of the Clean Air Act.

Question: Isn’t it unusual to submit a post-argument letter to the Court?

Air Act Andy: The rules of the Court do not specifically cover this sort of filing, and only time will tell how helpful the filing was for the government. It is worth noting, though, that once General Verrilli filed his letter, other parties followed suit. In particular, petitioners’ counsel pointed the Court to specific language in the preamble to the final MATS Rule, 77 Fed. Reg. 9304, 9395 (Feb. 16, 2012), where EPA said it could not, and did not, consider costs during the subcategorization process:

Failing to demonstrate that coal-fired [electric generating units] are different based on emissions, the commenters turn to economic arguments, asserting that failing to subcategorize will impose an economic hardship on certain sources. Congress precluded consideration of costs in setting [technology standard] floors, and it is not appropriate to premise subcategorization on costs either.

Question: On a more personal note, was your trip to the Court less eventful than the last time you were there?

Air Act Andy: Ah, you are referring to my December 11, 2013 visit to the Court. On that snowy day, I arrived at the Court wearing a long, stylish gray cardigan sweater instead of a suit jacket. I was stopped by guards and politely told I would not be allowed to sit in the section reserved for members of the Supreme Court Bar unless I replaced my fashionable sweater with a suit jacket. Someone from the clerk’s office, acting like a fine restaurant’s maitre d’, swiftly provided me with a ladies suit jacket and allowed me into the courtroom. But when I returned to the Court last month to hear argument in Michigan v. EPA, I was not treated like a fashion felon. Instead, Court staff personally escorted me into the courtroom a half hour before anyone else from the public was allowed in the room, gave me a prime seat, and allowed me to sit quietly and take in the majesty of the room. 

Question: What is the reason for the different treatment?

Air Act Andy: Last month, I arrived wearing a foot cast instead of a gray cardigan. I had broken my foot the week before, and the Court’s wonderful staff gave me permission to arrive and get seated early.

Question: So, was it worth it to have a broken foot?

Air Act Andy: I wouldn’t recommend that you drop granite on your foot a week in advance of a trip to the Supreme Court, but being able to sit by myself in the courtroom for a half hour before others were admitted was pretty special.

The Clean Power Plan: NOT Exactly What the Statute Tells EPA To Do

Posted on April 3, 2015 by Richard G. Stoll

As most followers of this blog know, EPA proposed its “Clean Power Plan” for existing electric power plants under the Clean Air Act (CAA) in June 2014. And just this week (March 31), the Obama Administration with great fanfare submitted its 2025 greenhouse gas (GHG) emissions target to the United Nations for the international climate change convention.

The Administration pledged to reduce U.S. GHG emissions by 26-28% (below 2005 levels) by 2025, and the bulk of these reductions are supposed to come from the Plan.  But will the massive reductions EPA claims will result from the Plan ever occur?

Defending the legality of the Plan in an interview published in the March 31 Wall Street Journal, EPA Administrator Gina McCarthy claims she is “following the direction of the Supreme Court” and doing “exactly what the statute [CAA] tells us we’re supposed to do.”

Huh? While the Supreme Court has recognized EPA’s authority to regulate GHGs under the CAA, it most certainly has not given EPA the “direction” EPA is taking in its pending proposal. And neither has Congress.

EPA’s Plan would mandate a panoply of groundbreaking controls on energy supply and demand. It would force utilities to use natural gas rather than coal, ramp up renewable energy use (wind, solar), and impose mandates for reducing energy consumption. Yet the CAA provision for which EPA claims authority for all this (§111(d)) only authorizes EPA to impose “standards for emissions” upon “existing sources” of air pollution — such as power plants. The controls must also be “adequately demonstrated.” In the past EPA applied this authority faithfully to the statutory terms, so “sources” that emit pollution are limited to prescribed amounts of emissions.

While EPA’s proposal includes some real emission standards for air pollution sources (power plants), the vast majority of GHG reductions are to come from the energy supply/demand measures that have no basis in the text of the CAA. If you are compelled through these mandates to limit your dishwasher use to specified hours or pay higher rates, is your dishwasher an “existing source” of “air pollution” and are the hourly restrictions “emission standards”? And how can such novel approaches be “adequately demonstrated”?

The Administration tried but failed to obtain amendments to the CAA from Congress to address climate change. EPA’s Plan might have been authorized by that failed effort, and it might be authorized by future legislation. The Plan’s pioneering provisions might arguably reflect good public policy. But under the CAA as it now stands, EPA is not authorized to impose them.

As for “direction” from the Supreme Court? In its recent Utility Air Regulatory Group v. EPA opinion (June 23, 2014), the Court rejected EPA’s attempt to regulate GHGs by “tailoring” the unambiguous text of the statute. The Clean Power Plan doesn’t just “tailor” the terms of the statute — it attempts to weave new authority out of whole cloth.

Can States Procure Clean Energy through an RFP Process?

Posted on April 1, 2015 by Mark R. Sussman

In February 2015, the states of Connecticut, Massachusetts and Rhode Island announced their intent to seek new large-scale clean-energy projects through a multi-state procurement process.  According to the draft Request for Proposal (RFP) the “essential purpose” of this procurement is to “identify any projects that offer the potential for the Procuring States to meet their clean energy goals in a cost-effective manner that brings additional regional benefits.”  The draft RFP seeks bids for the delivery of Class I renewable energy projects (i.e. solar, wind, biomass, fuel cells in Connecticut, and some hydroelectric) through power purchase agreements, combined power purchase agreements and transmission upgrades, or transmission projects with clean energy delivery commitments.  Because each state has different procurement laws and different definitions of “renewable energy”, the draft RFP notes that contracts for any selected projects must be negotiated with the relevant electric distribution companies (EDC) and approved in accordance with applicable state and federal laws.

To encourage the generation of renewable energy, many states have adopted Renewable Portfolio Standards (RPS) to require electric distribution companies and retail electric suppliers to include an increasing percentage of renewable energy in their mix of generation resources.  Unfortunately, the RPS alone seems insufficient to encourage the development of enough renewable energy resources to address the renewable energy and climate change policies of the states.  Therefore, the three New England states, as well as others, are experimenting with different methods to incentivize renewable energy generation.  Given the substantial capital requirements for constructing new electric generating facilities and the need for an assured revenue stream, long-term power purchase agreements are increasingly being used to encourage the construction of new energy resources.  The RFP to be issued by the three New England states seeks to attract new large scale renewable energy projects by offering successful bidders long-term energy contracts.

One question raised by this new approach to encourage the construction of reasonably-priced renewable energy resources is whether federal law preempts the states from contracting for large wholesale electric generation, despite independent state policies designed to encourage the development of more renewable energy resources.  This issue has been raised in several recent federal lawsuits.  

Last year, both the Fourth and Third Circuit Courts of Appeals concluded that state programs awarding long term contracts to new electric generating facilities were preempted by the Federal Power Act.  In PPL EnergyPlus, LLC v. Nazarian, 753 F.3d 467 (4th Cir. 2014), the Fourth Circuit held that a fixed, twenty-year energy contract for a new Maryland generating facility was preempted by federal law. Using an RFP process, Maryland selected a company to build a power plant and sell its energy and capacity on the federal interstate wholesale market.  Under the approved contract, the winning project was eligible for payments from the local EDC that amounted to the difference between the price paid in the interstate market and the amount approved in its EDC contract.  The Fourth Circuit concluded that the Maryland law was field preempted because it functionally sets the rate that the generator receives for sales in the interstate energy market, an area within the exclusive jurisdiction of FERC. 

Similarly, the Third Circuit, in PPL EnergyPlus, LLC v. Solomon, 766 F.3d 241 (3d Cir. 2014), held that federal law preempted a New Jersey statute under which the state solicited and awarded bids for new electric generating capacity using long-term energy capacity agreements.  The Third Circuit, however, acknowledged that states have a role to play in energy markets, and stated that not every state program that has an effect on interstate electric rates will be preempted.  The court explained that states may utilize measures that subsidize generators without being preempted, as long as such subsidies do not essentially set wholesale prices.   

In 2013, Connecticut solicited proposals for large scale renewable energy through an RFP process.  That solicitation resulted in the selection of a 250 MW wind project in Maine and a 20 MW solar project in Connecticut.  Both projects were awarded long term power purchase agreements for the energy produced by these projects.  A disappointed bidder, Allco Finance Limited, filed suit alleging preemption, following Nazarian and Solomon.  On December 10, 2014, the district court dismissed the case, finding that a disappointed bidder lacks standing. Allco Finance, Ltd. v. Klee. Nevertheless, the court ruled on the merits.  The district court concluded that the state RFP process was not preempted, rejecting Allco’s argument that the state-approved contracts set the wholesale price for energy produced by the successful bidders.  The court ruled that the effect of the Connecticut program on the interstate market was at most indirect and would cause no market distortion.  Allco has appealed the district court’s decision to the Second Circuit.

The use of an RFP process to encourage the development of renewable energy projects through the award of long term energy contracts is an effective way to procure lower cost renewable generation.  The Connecticut Z-REC program, which awards long term Renewable Energy Credit (“REC”) contracts, has proven to be successful in driving down the cost of solar renewable energy credits from small (less than 1 MW) solar projects.  In light of the federal preemption obstacles in awarding long-term wholesale electricity contracts, another approach may be to support large scale renewables by procuring long term contracts for RECs and allowing the energy price to be set by the interstate markets.  Since a REC represents the renewable attribute of electricity, and not the energy itself, such procurement should avoid the preemption issues identified by the Third and Fourth Circuits.  This may provide a path forward for states to pursue their clean energy goals by incentivizing larger scale renewable resources.