WHO WINS WHEN FEDERAL MINERAL LESSEES COLLIDE WITHIN THE SAME ACREAGE?

Posted on June 14, 2019 by Tom Sansonetti

Berenergy Inc. has been operating seven oil and gas wells on three federal leases in the Powder River Basin area of Wyoming since the 1960s.  Peabody Energy has been strip mining coal on multiple federal leases in the same area since the 1970’s. Further background of this conflict is found in my previous post.

Peabody’s North Antelope Rochelle Mine is the largest coal mine in the United States with a mine plan that requires it to move in a south-to-north direction over several decades.  The mine has advanced to within a quarter mile of the Berenergy wells.  The wells are spaced as to form a picket-fence like barrier to the mine’s progress.

Berenergy’s well bores extend several thousand feet below the surface.  Peabody’s coal reserves are only 850 feet under the surface.  In order to mine through, Peabody would have to pull the piping and plug each of the well holes.

After passing through the well sites, Peabody could re-drill and replace the piping to allow the oil and gas production to continue. The cost to Peabody would be approximately $500,000. Mining through the well sites would take approximately four years. The cost to Peabody of moving the mining machinery around the seven wells would be approximately $180 million. 

The value of the 91 million tons of coal under or near the wells at current prices is $1 billion. Because of the mine plan’s northerly direction and the mammoth size of the operations, the cost of returning to the bypassed coal years later would be prohibitive. Thus, the coal would remain in place if bypassed.

Peabody offered to purchase the Berenergy wells for their appraised price of $477,000. Berenergy rejected the offer, instead requesting a much larger sum in order to “get out of the way.” Peabody refused to pay the requested amount and both Peabody and Berenergy approached the BLM, as the common lessor, to seek a resolution of the standoff.

As a valid lessee in good standing, Berenergy argued that its leases were “first in time” giving them the “first in right” to continue producing until the wells run dry. Berenergy pointed out that Peabody leased its coal with full knowledge of the existence of the wells and should have to wait to mine unless willing to meet Berenergy’s monetary demands. Berenergy petitioned the BLM to suspend Peabody’s leases.

As a valid lessee in good standing, Peabody argued that the “first in time” theory was not embodied in either statutes or regulations and without statutory guidance or legal precedent the BLM should adopt a “doctrine of accommodation” that would permit maximum recovery of both the oil and the coal. Peabody petitioned the BLM to suspend Berenergy’s leases so it could mine through.

On August 17, 2018, the BLM Wyoming State Director issued a decision allowing Peabody to mine through the well areas based on the provisions of Section 209 of the Mineral Leasing Act. This provision allows the Secretary of the Interior to suspend mineral leases in order to conserve natural resources.

Peabody immediately began pulling and plugging the well closest to its operations. Berenergy obtained a temporary restraining order in Wyoming federal district court and appealed the BLM decision to the Interior Board of Land Appeals. The IBLA ruled against Berenergy’s motion for stay of the BLM order and Peabody demanded that Berenergy post a multi-million-dollar bond in order to continue the litigation before the IBLA. Berenergy was not able to post the bond and dismissed its IBLA appeal, opting to return to the Wyoming federal district court for resolution of its “first in time” claim naming the BLM as the defendant. Peabody intervened in the case to support the BLM decision.

After lengthy briefing and an oral argument, Wyoming District Judge Scott Skavdahl ruled on May 13, 2019 in favor of the BLM and Peabody. The court ruled that the MLA’s Section 209 permitted the BLM to suspend leases in the name of the conservation of natural resources when two valid federal leases developed a conflict over acreage where the minerals in question could not be simultaneously produced. Given the vast disparity between the value of the remaining oil and gas reserves versus the coal reserves to be bypassed, the court found that the BLM’s use of a comparative valuation standard to aid in its decision-making was reasonable. The court noted that it could not find regulatory authority on “first in time” that contradicted the language in Section 209.

On June 11, Berenergy filed its appeal in the Tenth Circuit Court of Appeals. Stay tuned.

HEY CONGRESS: PLEASE FIX THIS “JUST PLAIN NUTS” SITUATION

Posted on June 10, 2019 by Dick Stoll

Seth Jaffe’s recent ACOEL post correctly laments that the current judicial review regime for EPA’s Waters of the United States (WOTUS) rule is “just plain nuts.”  He points to two recent (May, 2019) conflicting federal district court decisions, leaving the Obama WOTUS rule in place in one area and remanding it in another.

I similarly complained of a “whole lot of craziness going on” regarding WOTUS judicial review in my 2015 ACOEL post.  I related how inconsistent decisions coming out of various courts were leaving the rule in force in some states, yet throwing it out in other states.  Since then, we have seen even crazier situations with some counties left subject to the rule while other counties in the same State are not!

Here is a recent sad summary from the May 29, 2019 Inside EPA: “Due to a variety of district court decisions, the 2015 rule continues to apply in 23 states and 23 of New Mexico’s 33 counties, but it is blocked in 26 states and in the other 10 New Mexico Counties.”  And to make the patchwork even crazier, the 23 states where the rule remains in place are anything but contiguous – looking at a U.S. map, it appears someone threw darts.

As Rick Glick recently reminded us, we will soon have a brand new WOTUS from the Trump EPA folks.  This will inevitably trigger a slew of new judicial review actions in numerous federal district courts, with another crazy-quilt patch of inconsistent results sure to follow.

Seth appears to blame this situation on the Supreme Court, which ruled last year that initial judicial review of the WOTUS rule must lie in the federal district courts – not, as the federal government had urged, in a U.S. Court of Appeals.  Seth notes that “the Supreme Court had the luxury of ignoring the chaos that would ensue” from its decision.

I blame this situation squarely on Congress, however.  Given the way the Clean Water Act is drafted, I just don’t see how the Supreme Court could have ruled otherwise.  And it is telling that the Court’s opinion was unanimous.  That’s right, a unanimous opinion from this Supreme Court! 

The heart of the problem is straightforward.  Under the federal APA, direct judicial review of final agency rules lies in federal district courts except where Congress has provided that certain types of rules are to be reviewed directly in a Court of Appeals.  As I outlined in my 2015 “craziness” post, Congress has provided that all sorts of national rules under the Clean Air Act, the Resource Conservation and Recovery Act, and many other statutes, shall be directly reviewed by a Court of Appeals.

But in 1972 Congress took a different approach in the Clean Water Act, and specified that only seven types of final EPA actions would be directly reviewed in a Court of Appeals.  As the Supreme Court unanimously ruled last year, the WOTUS rule does not fit within any of these seven types of actions.  As a matter of pure (and unfortunate) logic, this means the district courts have initial jurisdiction over the WOTUS rule.

The federal government argued before the Supreme Court that the policy arguments in favor of direct Court of Appeals review are overwhelming.  The crazy-quilt patchwork that would take years (probably decades) to resolve would be avoided, as federal rules would require challenges filed in various Court of Appeals circuits to be consolidated in one Court. 

I wholly agree with these policy arguments, and I believe it is up to Congress to fix this mess. Just a few words added to the CWA would do it.  For example, Congress could simply provide that final rules defining the extent of “waters of the United States” would be the eighth type of action subject to direct Court of Appeals review.  Or many other formulations with just a few words could do the trick.

I know we live in polarized political times, and it is hard to secure Congressional consensus on major issues like reproductive rights, immigration, etc.   But should it be polarizing to provide direct Court of Appeals review of a critical EPA rule to avoid “just plain nuts” and “whole lot of craziness” inconsistencies throughout the nation?  If it is, I think that is just plain nuts.

Woe is WOTUS

Posted on June 7, 2019 by Seth Jaffe

When the Supreme Court decided that the district courts had jurisdiction over challenges to the Obama administration WOTUS rule, I described it as a victory of the “give me a break” doctrine of statutory interpretation over the “just plain nuts” theory.  I also noted that the Supreme Court had the luxury of ignoring the chaos that would ensue.

Whatever one may think of the merits of the competing theories, two district court decisions in the past week have made clear that it is, indeed, just plain nuts to have these cases before the district courts.

First up, Texas v. EPA, in which Judge George Hanks (an Obama appointee, no less) ruled that EPA and the Corps of Engineers had violated the Administrative Procedure Act in two ways by promulgating the 2015 Rule.  First, while the proposed rule had defined “adjacent waters” based hydrogeological criteria, the final rule used specific numerical distance criteria instead.  The Court concluded that the use of distance criteria was not sufficiently anticipated in the proposed rule and thus EPA violated the APA when it failed to take comment on the new approach.  Judge Hanks also concluded that the 2015 Rule violated the APA because the Agencies relied on what is known as the “Final Connectivity Report,” even though the comment period closed before the Final Connectivity Report was available.  As a result, Judge Hanks remanded the 2015 Rule to the Agencies “for proceedings consistent with this order.”  Of course, the Agencies have already announced that they intend to replace the 2015 Rule, so I think we all know what those proceedings will be.

Next up, Oklahoma v. EPA, in which Judge Claire Eagan (a Bush appointee, no less!), refused to issue a preliminary injunction against the enforcement of the 2015 Rule.  Simply put, Judge Eagan was not persuaded by any of the declarations submitted by the plaintiffs that they would suffer irreparable harm if the 2015 Rule were to remain in effect in Oklahoma.  She described them as “speculative.”  This was particularly troubling because:

the 2015 Rule has been in effect for varying periods of time since this case was filed, and the State can identify no evidence of an aggressive expansion of federal regulation of Oklahoma waters. … This case has been pending for nearly four years, and the Court would have anticipated a showing of substantial, actual harm in support of a motion for preliminary injunction.

We now have a situation where an Obama appointee has remanded the 2015 Rule and a Bush appointee has refused to enjoin its enforcement.  I do get some pleasure from these two judges upsetting preconceived notions in this partisan age about what judges do and how they decide.

Beyond that, however, I have no idea what these cases mean for the enforcement of the 2015 Rule.  I understand that this may all soon be moot, but in the meantime, it’s hard to defend this as a logical system of judicial review of agency action.  Indeed, I might even go so far as to say that it’s just plain nuts.

2019 WOTUS Rule Seeks to Make the Complex Simple—It Won’t Work

Posted on June 6, 2019 by Rick Glick

What is the jurisdictional reach of the Clean Water Act?  The Act applies to “navigable waters”, which are defined as the “waters of the United States, including the territorial seas.” That’s all the CWA says about jurisdiction.  Congress left it to the implementing agencies—EPA and the Corps of Engineers—and the courts to define the contours of CWA jurisdiction.  In the 45 years following enactment, we are not much closer to clarity. 

The 2019 proposed “waters of the U. S.” or WOTUS rule is the latest attempt and, like all its predecessors, it has generated a lot of controversy.  Setting aside for the moment whether the rule is ultimately adopted and survives the inevitable court challenges, will it achieve the CWA’s object “to restore and maintain the chemical, physical, and biological integrity of the Nation's waters”?  Unfortunately, the approach taken in the rule seeks an easy resolution to a complex problem as it avoids the interconnectedness of natural systems.  That approach will be of limited use in meeting the CWA’s objective.

The central strategy underlying the CWA is adoption by the states of water quality standards.  The standards would be protected through grant funding of public treatment facilities on the one hand, and on the other, a regulatory program allowing for limited discharges of pollutants or filling of wetlands to ensure attainment of standards.  Early cases looking at discharges or fills subject to the CWA stressed whether the receiving waters were “navigable in fact,” that is, capable of carrying interstate commerce.  However, regulations adopted by the Corps of Engineers extended jurisdiction to tributaries and adjacent wetlands, as degradation of these results in degradation of the navigable waters.  These regulations also included certain intermittent streams among WOTUS.

In its 2006 decision in Rapanos v. U. S., a majority of the Supreme Court found the regulations too broad, but did not quite agree as to why.  Writing for the plurality, Justice Scalia criticized the Corps for regulatory overreach and argued for a common sense, dictionary understanding of WOTUS:

In sum, on its only plausible interpretation, the phrase “the waters of the United States” includes only those relatively permanent, standing or continuously flowing bodies of water “forming geographic features” that are described in ordinary parlance as “streams[,] … oceans, rivers, [and] lakes.” See Webster’s Second 2882. The phrase does not include channels through which water flows intermittently or ephemerally, or channels that periodically provide drainage for rainfall. 

In other words, if you can see it and your feet get wet when you stand on it, the CWA applies.  Applying his usual strict constructionist approach, Justice Scalia found no statutory justification for a nuanced approach to jurisdiction.  By Executive Order, President Trump directed EPA and the Corps to replace the Obama WOTUS rule with one based on Justice Scalia’s interpretation, and the proposed rules do just that.

Will this approach serve the stated objective of the CWA to protect our waters?  Justice Kennedy, in his concurring opinion in Rapanos, thought not.  He chastised both the plurality and the dissent for not applying the test established by the Court just five years earlier in Solid Waste Agency of Northern Cook Cty. v. Army Corps of Engineers.  That case pegged jurisdiction to whether there is a “significant nexus” between the wetland in question and a navigable waterway.  In SWANCC, the Court rejected Corps regulations that imposed jurisdiction over isolated wetlands because they served as habitat for migratory birds.  That was not, per the Court, enough to show a significant nexus between those wetlands and a navigable waterway. 

However, in Rapanos, Justice Kennedy argued that the Court must do the SWANCC analysis, with all its inherent complexity, before simply concluding there is no jurisdiction:

Taken together [prior Court opinions show that], the connection between a nonnavigable water or wetland and a navigable water may be so close, or potentially so close, that the Corps may deem the water or wetland a “navigable water” under the Act. In other instances, as exemplified by SWANCC, there may be little or no connection. Absent a significant nexus, jurisdiction under the Act is lacking.

* * *

The required nexus must be assessed in terms of the statute’s goals and purposes. Congress enacted the law to “restore and maintain the chemical, physical, and biological integrity of the Nation’s waters,” 33 U. S. C. §1251(a), and it pursued that objective by restricting dumping and filling in “navigable waters,” §§1311(a), 1362(12). With respect to wetlands, the rationale for Clean Water Act regulation is, as the Corps has recognized, that wetlands can perform critical functions related to the integrity of other waters—functions such as pollutant trapping, flood control, and runoff storage. 33 CFR §320.4(b)(2). Accordingly, wetlands possess the requisite nexus, and thus come within the statutory phrase “navigable waters,” if the wetlands, either alone or in combination with similarly situated lands in the region, significantly affect the chemical, physical, and biological integrity of other covered waters more readily understood as “navigable.” When, in contrast, wetlands’ effects on water quality are speculative or insubstantial, they fall outside the zone fairly encompassed by the statutory term “navigable waters.”

The analysis called for by Justice Kennedy is complex and requires professional judgment.  Granting agencies the discretion to exercise that judgment makes many uncomfortable, but such discretion is inherent in our current framework in which Congress provides vague direction that agencies must implement.  There is much talk about the Supreme Court eviscerating Auer and Chevron deference to agency interpretations of their own rules or statute, but surely there must be some leeway for agencies that courts can find acceptable.  If not, already ponderous and glacially slow regulatory processes will get only more so. 

The Obama WOTUS rule took the Kennedy approach and then tried to put certain sideboards around it to determine CWA jurisdiction, which played to mixed reviews—a million comments and scores of legal challenges were filed.  The Trump WOTUS rule swings the pendulum toward the simplistic Scalia approach, which will also draw broad opposition.

Getting clarity on the scope of CWA jurisdiction has proved elusive.  However, in our zeal for clarity and preventing overly aggressive federal regulation, we must not lose sight of the clarion purpose Congress gave in enacting the CWA in the first place.