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.

Oklahoma Federal Court Says It Lacks Jurisdiction to Award Declaratory Relief to EPA in Clean Air Act Case

Posted on March 23, 2015 by Donald Shandy

On January 15, 2015, Oklahoma Western District Judge Timothy DeGiusti dismissed a declaratory judgment action brought by the United States Environmental Protection Agency (EPA) against Oklahoma Gas and Electric Company (OG&E) under the Clean Air Act.  In United States v. Okla. Gas & Elec. Co. , the Court found that it lacked subject matter jurisdiction over EPA’s claims.

The litigation involved certain modifications made by OG&E at its Muskogee and Sooner plants.  These modifications occurred more than five (5) years prior to EPA’s suit.  Before commencing each of the projects, OG&E submitted “Project Notifications” to the Oklahoma Department of Environmental Quality (DEQ) that: (1) stated that each of the modifications would not result in a significant emissions increase; and (2) committed to submitting annual reports supporting this conclusion.  OG&E did not submit detailed emissions calculations.  However, five years of data subsequent to the modifications confirmed that significant emissions increases did not occur. 

Although the underlying dispute revolves around whether OG&E was required to obtain a Prevention of Significant Deterioration (PSD) permit before commencing each of the modifications, EPA did not allege that the projects were “major modifications” or that the projects resulted in “significant emissions increases” from the Sooner or Muskogee plants.  Nor did the government seek penalties for violations of the PSD permit requirements or injunctive relief requiring OG&E to obtain permits, likely seeking to avoid the application of the five year general statute of limitations applicable to government claims for fines, 28 U.S.C. § 2462. Instead, the government only sought a declaration that OG&E did not properly project whether the modifications to the Sooner and Muskogee plants would result in a significant increase in emissions.

Given that the government did not allege a “major modification” or a “significant emissions increase” for any of the projects, the Court found that the government had not presented an actual case or controversy sufficient for the Court's exercise of jurisdiction. 

Even if OG & E failed as a matter of law to evaluate whether the modifications would result in a significant increase in post-modification emissions of regulated pollutants at each facility, that failure to project is not, without more, determinative of whether a PSD permit is required. Unmoored from a claim that the modifications at issue are major modifications, Plaintiffs ask this Court to make a declaration as to a collateral legal issue governing aspects of a future potential suit. EPA's attempt at piecemeal litigation, therefore, cannot withstand the Court's jurisdictional limitations.

The Court also rejected EPA’s novel claim for injunctive relief seeking to require OG&E to properly calculate whether the projects were likely to result in a significant emissions increase prior to construction.

The Court is not aware of any decision in which the injunctive relief requested by EPA has been granted, or for that matter, ever requested. As the parties concede, there is no statutory or regulatory requirement that projections be submitted to EPA or any other regulatory authority in the first instance. And, as the Sixth Circuit addressed in DTE Energy, there is no prior approval required by the agency. Thus, if the Court were to grant the injunctive relief requested by EPA it would be directing OG & E to submit projections where no statutory or regulatory authority for such action exists. The availability of relief of the nature requested by EPA is a matter to be addressed by Congress, not this Court.

This is an important decision limiting EPA’s ability to “second-guess” a facility’s pre-construction permitting calculations in the absence of data demonstrating a significant emissions increase.  

Never Mind the Road to the Final Four. How About the Road to the Right Case for Revisiting Auer Deference?

Posted on March 17, 2015 by Andrea Field

In its March 9, 2015 decision in Perez v. Mortgage Bankers Association, the Supreme Court held that the Administrative Procedure Act’s notice-and-comment requirement “does not apply . . . to interpretative rules.”  The decision was unanimous, but the concurring opinions of Justices Alito, Scalia, and Thomas express concern with the consequences of the Court’s opinion.   As set out well in the temperate concurrence of Justice Scalia (yes, it really is temperate), in giving the category of interpretive rules Auer deference: 

we do more than allow the agency to make binding regulations without notice and comment.  Because the agency (not Congress) drafts the substantive rules that are the object of those interpretations, giving them deference allows the agency to control the extent of its notice-and-comment-free domain.  To expand this domain, the agency need only write substantive rules more broadly and vaguely, leaving plenty of gaps to be filled in later, using interpretive rules unchecked by notice and comment.

While the three concurring justices are looking down the road for the right case for revisiting what is generally known as Auer deference (i.e., judicial deference to an agency’s interpretation of its own regulations), Seth Jaffe’s next-day blog posting suggests that the road to the right case might be a long one.           

I agree that the Court is unlikely to revisit Auer during the current Administration.  But what happens if those in the next Administration disagree with choices made by the current Administration?  What if they choose to address those disagreements by issuing a tsunami of interpretative rules that reverse both longstanding interpretive rules on which people have relied and/or the newer interpretive rules of the current Administration?  What happens, for example, if the next Secretary of the Department of Labor reverses the interpretive rule upheld by Perez?  Will those adversely affected by such a new interpretive rule stand by without protest?  Will they be satisfied with Justice Sotomayor’s suggestions for recourse (e.g., by trying to persuade courts that the reinterpretations are arbitrary and capricious)? 

I think not.  I think that just a short jog down the road, we will see some particularly bold (or outrageous) re-interpretative rules flowing from agencies unimpeded by fears of the judicial review process.  That will prompt challenges from those supportive of the previous interpretive rules.  And that might well prompt the Chief Justice and one or more other justices to join Justices Alito, Scalia, and Thomas in revisiting Auer deference.  I, for one, would welcome that revisit.    

News Flash: Courts Still Defer to an Agency’s Interpretation of Its Own Rules

Posted on March 10, 2015 by Seth Jaffe

The Supreme Court on Tuesday ruled that, when an agency revises its interpretive rules, it need not go through notice-and-comment rulemaking.  Although the decision, in Perez v. Mortgage Bankers Association, required the court to reverse a long-held line of D.C. Circuit cases, the decision was not difficult; it was, in fact, unanimous.  In short, the Administrative Procedures Act:

states that unless “notice or hearing is required by statute,” the Act’s notice-and-comment requirement “does not apply … to interpretative rules.”

It carves out no exception for revisions to interpretive rules.  Game over.

The truly interesting part of the case was in the concurring opinions.  Both Justices Scalia and Thomas, effectively joined by Justice Alito, argued that Supreme Court decisions giving deference to agencies’ interpretation of their own rules have no constitutional foundation and should be overruled.

This is not the first time that they have made these arguments.  As I noted previously, in Decker v. Northwest Environmental Defense Center, Chief Justice Roberts also suggested that it might be time to revisit what is generally known as Auer deference.  It is notable in Perez that the Chief Justice joined the Court’s opinion.  Absent a change in the make-up of the Court, I don’t see it revisiting Auer any time soon.

Otherwise, the most notable part of the case is a statement from Justice Thomas that, to me, already wins the metaphor of the year prize.  Justice Thomas’s argument against Auer deference, while couched in constitutional terms, is really a screed (parts of which I sympathize with) against the growth of rulemaking and the modern administrative state.  He laments the use of interpretive rules and the decline of formal notice-and-comment rulemaking, and the protections that are required:

Yeti-590x330

Today, however, formal rulemaking is the Yeti of administrative law. There are isolated sightings of it in the ratemaking context, but elsewhere it proves elusive.

True dat. It just doesn't justify abandoning Auer deference in my book.

 


No Competitors In My Backyard?

Posted on March 2, 2015 by Seth Jaffe

In Paradise Lost, John Milton wrote that “easy is the descent into Hell, for it is paved with good intentions.”  

road to hell

A modern environmental lawyer might say that the road to waste, inefficiency, and obstruction is paved with good intentions.  Nowhere is that more apparent than with citizen suit provisions, as was demonstrated in the decision earlier this week in Nucor Steel-Arkansas v. Big River Steel.

Big River Steel obtained a permit from the Arkansas Department of Environmental Quality to construct a steel mill in Mississippi County, Arkansas.  Nucor owns an existing steel mill in – you guessed it – Mississippi County, Arkansas.  Nucor brought a host of claims in various forums (Sorry; I’m not a Latin scholar and cannot bring myself to say “fora”) in an effort to derail the Big River Steel project.  It appealed the permit in Arkansas courts.  It also petitioned EPA to object to the permit.

Finally – the subject of this case – it brought a citizens’ suit under the Clean Air Act alleging that the permit did not comport with various CAA provisions addressing permitting.  The Court rightly dismissed the complaint, basically on the ground that the suit was simply an improper collateral attack on the air permit.  The 5th and 9th Circuits have reached similar conclusions in similar circumstances.

The point here, however, is that clients don’t want to win law suits; they want to build projects.  Even unsuccessful litigation can tie projects up in knots, jeopardizing project financing or causing a project to miss a development window.

The road to hell is paved with the pleadings of bogus citizen suits.

Court Rejects Preemptive Declaratory Judgment Lawsuit Against NGOs

Posted on February 24, 2015 by Peter Van Tuyn

In a decision lauded by local residents, Alaska Native tribal and business interests, the commercial and sport fishing communities, and conservationists, President Obama recently withdrew the Arctic waters of the North Aleutian Basin (also known as Bristol Bay) from future oil and gas leasing.  As President Obama  noted, Bristol Bay is a national treasure, one of Alaska’s most powerful economic engines, and home to one of the world’s largest salmon runs.  At the same time, the Obama Administration is working on the next outer continental shelf leasing program, and will soon be making critical decisions about whether and how to include within it leasing in the U.S. portion of the Arctic’s Chukchi and Beaufort Seas.

Industry interest in the area is led by Shell, which holds leases in the Chukchi and Beaufort Seas, and as detailed in an article I recently co-authored and in a dramatic cover story in the New York Times Magazine, has experienced a stormy effort to drill there.  Not content, however, to focus on the on-the-water challenges of drilling in the Arctic, Shell also pursued a novel legal strategy by preemptively suing its critics in an effort to smooth the waters for its drilling.

 After receiving approval from U.S. agencies for various aspects of its drilling plans, Shell filed lawsuits against conservation groups alleging that the groups were engaged in an “ongoing campaign to prevent Shell from drilling in the Arctic” and that it was “virtually certain” that the groups would challenge the federal approvals.  Shell sought a declaration from the courts that the approvals were legal. 

            The Ninth Circuit Court of Appeals recently issued an opinion rejecting Shell’s strategy on the jurisdictional ground that the Declaratory Judgment Act, on which Shell had based its strategy,  “does not create new substantive rights, but merely expands the remedies available in federal courts.”  The court noted that the law underlying Shell’s request for declaratory judgment was the Administrative Procedures Act (APA), which allows a party aggrieved by agency action to seek judicial review of that action, and that since it is only the agency that can be sued under the APA, “it would be odd to conclude that a [jurisdictionally-required] case or controversy exists merely because Shell seeks to know who would prevail if the environmental groups asserted an APA claim against the [agency].”  Indeed, as the court found, were it to hold otherwise, its “holding would create several unusual consequences,” two of which it found “particularly noteworthy”:

First, it would allow a district court to declare the [agency]’s actions unlawful under the APA in a judgment that is not binding on the [agency] itself. ... Second, absent agency intervention, such a lawsuit would allow the lawfulness of agency action to be adjudicated without hearing the agency’s own justification for its actions.

I would suggest that two other “unusual consequences” of a ruling for Shell would have been the upsetting of the historical body of administrative law guiding judicial review of federal agency action and an illegal limit on the First Amendment right of citizens to petition the government.  

The Poop on (and Unfortunately Surrounding) the Cow Palace

Posted on February 23, 2015 by Brian Rosenthal

The exception from solid waste regulations for agricultural waste applied as fertilizer is a safe harbor that has boundaries based on use. In Community Ass’n for Restoration of the Environment, Inc. v. Cow Palace, LLC (E.D. Wa, 2015), facts evidencing over applied fertilizer and leaking storage lagoons, recently led a district court to a finding of possible imminent peril to public health, welfare or the environment under RCRA.

The court’s partial framing of the legal questions was telling: 

(1) [W]hether the manure at the Dairy, when over-applied to land, stored in lagoons that leak, and managed on unlined, permeable soil surfaces, constitutes the “handling, storage, treatment, transportation, or disposal of . . . solid waste....” 

Defendant’s useful product counterargument did not overcome its waste handling practices, which were deemed deficient by the court. The case is an excellent primer for the storage and handling of agricultural waste and the parameters for waste handling by large concentrated animal feeding operations (CAFOS). The proper methods and conditions for land applying the waste as fertilizer are also discussed.

Many large farm operations properly manage waste and its use as land applied fertilizer. In Cow Palace, the court reviewed federal law and the overlay of required nutrient management best practice plans applicable to Washington farms by state regulation. Natural Resource Conservation Service lagoon storage rules and RCRA open dump rules were also addressed.

Deflated Footballs and Environmental Trials

Posted on February 11, 2015 by James Price

The 2015 Super Bowl between the New England Patriots and Seattle Seahawks is over, but the NFL’s investigation continues into whether the Patriots cheated by deflating footballs during earlier National Football League contests.  There are lessons in this experience for those of us who handle environmental trials or advise clients in such matters.

“Deflategate,” as this incident came to be known, tapped into sportswriters’, NFL veterans’, and the public’s distrust for (and maybe even dislike of) the Patriots in general and Bill Belichick, in particular.  Many critical comments referred back to the 2007 scandal in which Belichick and the Patriots were caught videotaping an opponent’s game signals.

Similar preconceived attitudes and prejudgments affect juries, and sometimes even judges, that are called on to decide environmental disputes.  Polling regularly shows that protecting the environment is a goal approved by a large percentage of the public.  Polling also shows that large percentages of potential jurors do not trust big business.  Jim Stiff, a jury consultant from Dallas, Texas, has studied comments during many mock jury deliberations and reports that potential jurors expect large corporations to know the regulations to which they are subject.  Jurors seldom give credence to a corporation’s arguments that the requirements were unclear, that the company thought it was complying when hindsight shows it was not, or that the company was doing the best it could in a difficult situation. Further, jurors often come to trial with a hindsight bias that leads them to ignore the evolution of environmental information and judge earlier conduct based on today’s knowledge.  

With civil trials, if an individual or small business is alleging injury from a large corporation’s environmental activities, jurors may focus on the specific allegations of damage they can see or with which they can identify, in contrast to the more abstract arguments advanced by the defendant. 

With environmental criminal trials, such difficulties are compounded by additional factors that can lower the thresholds of liability-creating activity and feed into jurors’ tendencies to reduce complex arguments into core principles they can grasp:

             -- Some environmental statutes impose criminal liability on the basis of negligent acts without requiring specific intent to commit a criminal act;

            -- Court rulings under other environmental statutes hold a defendant need only have intended to conduct the act at issue and not the resulting consequence of that act;

            -- Many environmental criminal cases include at least one count of failing to report an environmental event.  Prosecutors try to reduce failures to report to a black-and-white analysis:  The defendant did not report an event the statute required.

To counteract these attitudes, corporate defendants facing environmental allegations early on must develop themes that will appeal to juries (and judges, too) such as opponents’ overreaching and lack of harm.  They may need to cultivate arguments surrounding the complexity of the issues in dispute, but they must also make their case and themes simple.  They may argue that their actions were approved by environmental regulators, and, surprisingly enough, they should be prepared to demonstrate that the regulators have the public’s interest at heart and are not coddling the regulated community.  They need to have witnesses who can clearly explain complex technical matters in a way those without technical degrees can understand.  They will seek to exclude potentially prejudicial evidence of earlier events.  They will want to develop a thoughtful and strategic approach to juror selection. 

In the case of the Patriots, Bill Belichick gave a press conference a week before the Super Bowl in which he reported the Patriots had conducted experiments showing changes in weather and temperature could account for deflating the footballs.  He did not provide any details.  About the same time, physics professors and mechanical engineers reported online that the intrinsic physical properties of gases such as air are governed by a principle known as the Ideal Gas Law.  They said that under such principles, when footballs inflated at room temperature are taken to cold, wet, outdoor weather, drops in PSI are inevitable.  Most talking heads, however, seemed to brush off these assertions of physics properties and experiments.

All of the evidence in this matter is not in.  Nevertheless, in the court of public opinion, a large number of well-informed and probably well-intentioned people have made up their minds.  Maybe the Patriots did cheat.  Maybe not.  But the people who have already made up their minds, either way, might just be demonstrating the challenges corporate defendants face in environmental trials.

THE (NON)FINALITY OF SUPREME COURT OPINIONS

Posted on December 17, 2014 by Richard Lazarus

Last spring, as the Washington Post reported, I caught Justice Scalia in an embarrassing blunder that prompted the Justice to revise overnight the version of his dissenting opinion in EPA v. EME Homer City Generation, L.P. posted on the Supreme Court’s website. Scalia’s stumble? In his zeal to condemn EPA for what the Justice plainly considered to be an outrageous construction of Clean Air Act language in EME Homer, he somehow managed to get completely backwards what EPA had argued in Whitman v. American Trucking Ass’n.  And as the environmental law blogosphere cheerily trumpeted, what made the mistake especially “cringeworthy” was that Scalia himself had written the Court’s opinion in Whitman, so one was hard-pressed to blame just his law clerk.  (On the other hand, here at Harvard Law School, I was very much hoping it was not a Harvard clerk.)

However, what most fascinated me about the entire episode was not Scalia’s initial mistake, but the Court’s procedures for correction. The only reason the public knew about this particular correction was because Justice Scalia’s initial error had been so widely publicized, which was what in turn led me and others to spot the correction and publicize that as well. Otherwise, the correction was made entirely without the Court itself providing any notice. The slip opinion that appeared on the Court’s website was simply different from the one appearing the very next morning.

I was likely more focused on the Court’s process for correction because at that very moment, I had just completed a law review article on the Court’s longstanding, but wholly unappreciated, practice of revising slip opinions in just this kind of clandestine manner. And, not just dissenting opinions as in EME Homer, but also majority opinions of the Court.  The Court has literally always done this sort of thing, although no one had ever called them out on it.

I first became aware of the practice as a lawyer for the U.S. Department of Justice in 1987 when, at EPA’s prompting, we urged the Court to correct a “mistake” in its original slip opinion in International Paper Co. v. Ouellette, a significant Clean Water Act case, because of EPA’s concern that certain language in that opinion mischaracterized the role of citizen suits.  At our client’s urging, my then-boss, the Solicitor General, formally notified the Court of this “formal error” and the Court changed the language, precisely as we recommended, to eliminate the issue. As a result, the language appearing several years later in the bound volume of the U.S. Reports differed substantively from the original slip opinion language. No notice of this change was given, including to any of the parties in the case. The U.S. had participated as an amicus.

When this happened in 1987, I vowed someday to write on the topic.  It took me only about 27 years to do so, and the upshot appeared a few days ago in a lengthy article published in the December 2014 issue of the Harvard Law Review.  The article undertakes a full look at the Court’s practice, extending back to its earliest days until the present. (For example, Chief Justice Roger Taney added 18 pages to his opinion for the Court in Dred Scott v. Sandford in 1857, after the original opinion announcement.)

In my partial defense, not only did the necessary archival research require significant work over an extended time period, but the topic invariably took a backseat to other, seemingly more pressing, topics on which I was engaged.   In all events, the final article is now available here, and includes discussion of EME Homer, International Paper Company, and other environmental cases.

JERSEY PRAGMATISM

Posted on December 11, 2014 by Dennis Krumholz

A thought occurred to me recently, and not for the first time, about the decisions of the New Jersey state judiciary, including our Supreme Court, in the area of environmental law generally and site remediation particularly.  My realization was that those decisions are driven as much by a desire to facilitate the remediation of contaminated sites as they are by principled interpretation of statutes, regulations, canons of construction and the like.

Such an approach, of course, is understandable on one level, as New Jersey environmental statutes are ameliorative in nature, a cleaner environment is in the interest of everyone, and our fair state has suffered environmentally from its industrial legacy more than most jurisdictions.  But on a deeper level, courts are supposed to decide cases in accordance with law, and deciding cases with a particular goal in mind may result in an injustice to the litigants.  Moreover, fuzzy reasoning could provide inaccurate guidance to the bar and public.

In one recent case, for example, the Supreme Court of New Jersey was called upon to determine the degree of causation that the New Jersey Department of Environmental Protection (“NJDEP”) needed to establish in order to impose liability on a discharger of hazardous materials.  Rather than simply requiring proximate cause, the court hemmed and hawed its way along, formulating the appropriate standard at various points as a “real, not hypothetical” connection, and as a “reasonable nexus or connection” between the alleged discharger and the discharge. 

The Court ultimately held that the standard of causation needed to establish liability varies with the form of relief requested.  Unfortunately, the Court provided no support for this approach, which conflates the proof needed to establish liability with what is necessary to impose damages.  This leads to the conclusion that the Court was reluctant to impose a difficult burden of proof on the state and, presumably, private litigants which could result in judgments for defendants and hence, in the Court’s view, deter remediation of contaminated sites.

In another recent case, the Supreme Court had to determine the interplay between the jurisdiction of a state agency and state trial courts in adjudicating liability for site remediation.  The Court reversed the trial and appellate courts and held that a litigant could seek relief in court before the contours of the remediation had been firmly established. 

Undergirding the Court’s reasoning was pragmatism – the earlier we allow a contribution plaintiff to pursue other responsible parties, the more the defendants will be encouraged to participate in the remediation process, thereby facilitating more and faster cleanups.  While the result was correct as a matter of existing law, the reasoning was weighted far too heavily with an eye towards the result.

Finally, in a case that recently was argued and awaits adjudication, the Supreme Court was asked to determine whether a statute of limitations exists under the New Jersey Spill Compensation and Control Act, our state’s CERCLA analog, and, if so, how long it is and when it begins to run.  Implicit in many of the questions the Court asked the advocates was which resolution would facilitate the faster remediation of more sites – no statute of limitations at all, which would allow remedial claims to be brought at any time and not foreclose an action, or a limitations period which would incentivize the plaintiff and defendants to move forward more quickly to clean up sites.

Remediating the environment, and making sure responsible parties are held to their obligations, are plainly laudable goals.  But a little less focus on the ultimate environmental outcome and greater adherence to the principles of adjudication, statutory interpretation and the like would improve the quality of justice without sacrificing environmental protection.

Old MacDonald Had a Farm [Loan] E-I-E-I-O My

Posted on December 10, 2014 by Charles Nestrud

On December 2, 2014 the United States District Court for the Eastern District of Arkansas enjoined the Small Business Administration (SBA) and the Farm Service Agency (FSA) (together the “Agencies”) from making any payments on their loan guaranties to Farm Credit Services of Western Arkansas (Bank), pending the Agencies’ compliance with the National Environmental Policy Act (NEPA) and the Endangered Species Act (ESA).  The Bank had loaned nearly $5 million to C&H Hog Farms, Inc. (C&H) in 2012 for the construction of a confined animal feeding operation (CAFO), collateralized by a guaranty from the United States. 

The court’s decision paves the way for potential alteration of the collateral agreement terms, over two years after the non-party Bank had closed and funded the loan.  Such court action could jeopardize the farm loan guaranty program.

In its decision the court found that the SBA failed to conduct any environmental review of its loan guaranty or to consider the impact of that loan on the endangered Gray Bat that resides in an area near the CAFO, and that the FSA’s environmental impact and endangered species reviews were inadequate; the Agencies’ actions thereby violated both NEPA and ESA.  The court’s injunction precludes the Agencies from making any payment on their loan guaranties to the Bank until they have complied with their obligations under NEPA and ESA, giving them a year to do so.

In August of 2012, and as provided under state regulation, C&H received a General No Discharge Permit (Permit) from the Arkansas Department of Environmental Quality (ADEQ) that addresses the management of manure, litter, and process wastewater generated from the CAFO.  The Permit authorizes up to 6503 swine, at a location along a creek that discharges to the Buffalo National River, the nation’s first national river.

Upon completion of FSA’s review process and issuance of a Finding of No Significant Impact in August 2012, C&H obtained an initial construction loan of $3.6 million, 75% of which was guaranteed by SBA.  C&H later received a $1.3 million loan, with 90% of that loan guaranteed by FSA.  Both loan guaranties were required by the Bank.  The loans were funded, construction was completed, CAFO operations commenced, and C&H has been making timely loan payments. 

In August of 2013 the Buffalo River Watershed Alliance and several other organizations sued the Agencies, alleging that the CAFO permit contemplated at least occasional discharges of waste into surface waters that could pollute the Buffalo National River, and that the Agencies had violated NEPA, ESA, and certain other federal requirements.  The plaintiffs requested that the loan guaranties be enjoined, pending a further environmental review.  On December 2, 2014 an injunction was issued.  C&H and the Bank were not parties to the litigation.   

The significance of this decision is not the finding of a NEPA or ESA violation.  What is surprising, and noteworthy, is the Court’s conclusion that such agency action was sufficiently related to a loan arrangement between two entities that were not party to the suit, leading to possible rewriting of that loan two or more years after it was negotiated and closed, and the funds dispersed. 

The court concluded there was a sufficient causation nexus because “[w]ithout the guaranties, there would’ve been no loans.  Without the loans, no farm.”  In addition, the Court concluded that requiring further NEPA and ESA review would in fact redress the plaintiffs’ injuries for the loans already made since the Agencies have an “ongoing role in monitoring any conditions placed on their guaranties,” thereby suggesting that further restrictions could well be placed on C&H’s operation of the CAFO.    

The Agencies have now agreed to undertake the additional review within the mandated 12 month time period.   That review may result in no additional restrictions, or in restrictions that C&H can carry out without difficulty.  With C&H being current on its loan payments, this decision may ultimately have no practical impact on C&H or its Bank.  However, the “oh my” scenario is equally possible, because the court’s decision has no limits on the scope of additional restrictions that may be imposed.

As noted by the court, “[t]he federal agencies, through guaranty conditions, have control over C&H’s case-relevant behavior” and “it’s likely that more environmental review will change how C&H operates its farm.”  If C&H is unable to meet those restrictions, resulting in a loan default, the Bank will lack the guaranty it required to fund the loan in the first place.  Thus, the court has authorized the guarantor to re-write the terms if its guaranty, post hoc, to the severe detriment of the non-party Bank.

With a six year statute of limitations on filing a NEPA claim, what farm loan guaranty is safe from being altered or eliminated as a result of judicial action?  Will Old MacDonald be prohibited from obtaining next year’s crop loan until the Agencies complete an EIS, a process that will take a year to complete and likely cause him to miss the planting season? 

And what about other endangered species that could implicate the validity of other farm loan guaranties?  EPA’s proposed habitat designation for two newly listed endangered mussels will encompass over 40% of the area of the state of Arkansas, impacting one third of all property owners in the state, most of which are farmers. 

In addition, the broader implications of this decision on security interests cannot be overlooked.  There were no parties in the litigation to argue that relieving the United States from its debt/collateral obligation would unfairly reward the Agencies for their failure to comply with NEPA and ESA.  The Agencies certainly did not advance that argument.   In fact, the injunction is what the Agencies requested, the court noting that its “Order will follow generally the terms [of the injunction] suggested by [the Agencies].”  The Court even ordered the Agencies to “modify or void the loan guaranties as they deem appropriate in light of their revised and supplemented NEPA and ESA analysis.”  The impact upon the agricultural loan program is clear, since these loans are routinely traded as federally insured securities.  

The Arkansas Farm Bureau has succinctly identified the potential implications of this decision:  “[The opinion] probably just made it a whole lot harder for the next guy who’s trying to get a farm loan, regardless of where they are.”  You can take that to the bank—or not!    

Another Legal Victory for America’s First Offshore Wind Project

Posted on December 5, 2014 by Katherine Kennedy

The 468 megawatt Cape Wind project, slated for construction in federal waters off the coast of Massachusetts in Nantucket Sound, is the first offshore wind project to be proposed and approved in the United States.  The project has strong support from the Commonwealth of Massachusetts, many national, state and local environmental groups, organized labor and many others. 

But being the first in an innovative venture is always difficult, and unsuccessful litigation by project opponents – some funded in large part by billionaire Bill Koch – has slowed the pace of the project.  By Cape Wind’s count, thirty-two cases have been filed by project opponents.  Cape Wind has ultimately prevailed in all of these actions.

A recently issued but unheralded district court decision now signals yet another legal victory for Cape Wind.

In April 2010, after a lengthy and comprehensive environmental review and permitting process which included preparation of two environmental impact statements, the U.S. Department of Interior approved the Cape Wind project.  Project opponents then filed three complaints in the United States District Court for the District of Columbia.

The complaints, which were ultimately consolidated, challenged approval of the project by various federal agencies and alleged violations of the National Environmental Policy Act (NEPA), the Endangered Species Act, the Migratory Birds Treaty Act, the National Historic Preservation Act, the Outer Continental Shelf Lands Act, and the Coast Guard and Maritime Transportation Act of 2006. 

Cape Wind intervened in the actions as a defendant-intervenor.  Because of the project’s clean energy significance, NRDC attorneys (including me), joined by the New England-based Conservation Law Foundation and Mass Audubon, the state’s leading wildlife protection organization, filed two “friend of the court” briefs in support of the project.

In March 2014, U.S. District Court Judge Reggie Walton issued an 88-page decision granting summary judgment to the defendants, rejecting the bulk of opponents’ challenges to the federal government’s 2010 approval of the project.  The court dismissed outright a host of claims that related to the government’s environmental review of the project under the National Environmental Policy Act and to the Coast Guard’s review of navigation issues under the Outer Continental Shelf Lands Act.

The court remanded two limited issues back to the federal agencies. First, it directed the U.S. Fish & Wildlife Service (FWS) to make an independent determination about whether a potential operational adjustment for the project was a “reasonable and prudent measure”.  The court explained that it was unable to tell, based on the record, whether the Fish & Wildlife Service had made an independent determination or had adopted a position taken by a sister agency.

Second, the court directed the National Marine Fisheries Service (NMFS) to issue an incidental take permit covering right whales.  While the NMFS biological opinion stated that the project “was not likely to adversely affect right whales” and that “incidental take was not likely to occur,” the court found that the opinion did not state that an incidental take would not occur or determine the volume of any potential take.

After the court’s decision, the two federal agencies complied with the district court’s instructions.  FWS issued its independent determination with respect to the potential operational adjustment.  NMFS amended the incidental take opinion to state that no take of right whales was anticipated, and thus the incidental take amount for this species could be set at zero.

However, that did not end the matter.  As the district court noted in its September 12, 2014 order, “history should have forewarned that any attempt to bring this [protracted] litigation to an expeditious conclusion would prove difficult.”  And as expected, the plaintiffs filed a supplemental complaint challenging the two agencies’ actions on remand.

On November 18, 2014, the district court dismissed the plaintiffs’ supplemental complaint.  The court made short work of the claims, finding them all to be barred – some because they had been previously waived or abandoned and some because the Court had previously considered and rejected them.  Indeed, the court noted that some of the claims were “difficult to understand.” With that decision, this chapter in the long string of legal challenges was concluded, at the district court level at least.  The plaintiffs filed a notice of appeal yesterday.

Meanwhile, the Cape Wind project continues to move forward.  In July, the U.S. Department of Energy issued a conditional loan guarantee commitment for the project, the first step toward securing a $150 million loan guarantee.  In August, the project selected its lead construction contractors.  Construction is expected to proceed in 2015.  

And Cape Wind’s example has spurred forward movement in the U.S. offshore wind industry.  Currently, there are some fourteen offshore wind projects in an advanced stage of development along the East Coast and elsewhere, representing 4.9 gigawatts of potential renewable electricity capacity.  Despite the protracted litigation, it’s my hope that Cape Wind, buoyed by its legal victories, will herald the start of a new renewable energy industry that will fully and sustainably tap into the United States’ huge offshore wind resource.

CITY OF MARGATE, NEW JERSEY

Posted on December 3, 2014 by Joseph Manko

As my three prior blogs have discussed (see parts I, II, and III), the State of New Jersey has responded to Hurricane Sandy’s devastation in 2012 by escalating its efforts to construct sand dunes on its beaches to protect the shore communities beach front properties from repetitive coastal flooding. These cases have attacked the failure of the ensuing takings awards as not giving adequate compensation for the resulting partial loss of ocean view by the impacted homeowners or, by failing to reduce such awards to reflect the benefit the dunes would provide against future flooding in the future.

Now comes along a shore community, the City of Margate (in which this author owns a 10th floor vacation condominium), which filed a 16 page complaint (with 149 pages of exhibits) and asked the U.S. District Court of New Jersey to enjoin the NJ Department of Environmental Protection (NJDEP) and the U.S. Army Corps of Engineers (Corps) from trespassing on its residents properties by constructing dunes on Margate’s beaches. Despite the proposed takings being grounded in the Government’s power to protect the public health, safety and welfare, the Court issued a temporary restraining order (TRO) on November 24 in response to Margate’s Complaint alleging an “unlawful taking of Margate’s beachfront property”, required a bond of [only] $10,000.00 and scheduled a December 4, 2014 hearing to determine whether a preliminary injunction should be issued.

Stay tuned for further updates on this litigation which constitutes a challenge to the propriety of using sand dunes as an appropriate storm protection strategy for Margate, acknowledging that some preventive measures are necessary to deal with what will probably be recurring coastal flooding.

Should Watersheds Have Standing? Should Corporations?

Posted on November 24, 2014 by Seth Jaffe

In his seminal essay in 1972, Christopher Stone famously asked “Should Trees Have Standing?” Apart from Justice Douglas’s dissent in Sierra Club v. Morton, the idea has never gained much traction, at least in United States courts.  Now, due to the passage of a “Community Bill of Rights” ordinance by the Grant Township (Pennsylvania) Supervisors, the concept is about to get a legal test.

It appears that the ordinance was drafted by the Community Environmental Legal Defense Fund, and the Supervisors have retained CELDF to defend the ordinance against a challenge by the Pennsylvania General Energy Company, which apparently wants to dispose of fracking wastewater in Grant Township.

According to the complaint challenging the ordinance, the ordinance does not just enshrine nature with rights; it would deprive them to corporations.  Allegedly, the ordinance states that corporations challenging the ordinance are:

not deemed to be ‘persons,’ nor possess any other legal rights, privileges, powers, or protections which would interfere with the rights or prohibitions enumerated by [the] Ordinance.

Good luck defending that one in court.  Call me an old-fashioned anthropocentric, but I prefer defending protections for natural systems and the environment on the ground that such protections are good for people.

THE SEVENTH CIRCUIT BREATHES NEW LIFE INTO THE DIVISIBILITY OF HARM

Posted on November 19, 2014 by William Hyatt

DEFENSE TO JOINT AND SEVERAL LIABILITY

On September 25, 2014, the Seventh Circuit added two more opinions to the long list of decisions arising out of the Lower Fox River and Green Bay Superfund Site (Fox River Site) in northeastern Wisconsin.   

In NCR Corp. v. George A. Whiting Paper Co., a contribution suit, the court reversed and remanded a decision by the Eastern District of Wisconsin, which had held that NCR was not entitled to any contribution from the other defendants. 

In U.S. v. P.H. Glatfelter Co. (Glatfelter), an enforcement action, the court ruled on a number of important CERCLA issues, such as whether a permanent injunction can be issued to enforce a Section 106 unilateral administrative order.  In affirming in part and reversing in part the same District Court decision, the Seventh Circuit provided the latest appellate guidance on the divisibility of harm defense to joint and several liability.  

The District Court had rejected divisibility of harm defenses raised by defendants NCR and Glatfelter, ruling, as a matter of law, that the “harm” in one of the operable units of the Fox River Site (OU-4) was not “theoretically” capable of being divided.  The District Court ruling thereby avoided the second step of the divisibility of harm analysis, the factual question of how a divisible harm might be apportioned.  That was the question resolved by the Supreme Court in Burlington N. & Santa Fe R.R. Co. v. United States (Burlington Northern), a decision which gave Superfund practitioners great hope because the apportionment approved by the Court was so imprecise. Litigation in the lower courts following Burlington Northern quickly turned to the question of what makes a harm “theoretically” capable of being divided.  The question is whether it is possible to approximate the contamination caused by each party.

In the District Court, defendants NCR and Glatfelter argued for divisibility of harm on different theories.  NCR admitted that it had contributed to the contamination in OU-4, but argued that the harm was capable of apportionment and that it should be liable only for its apportioned share of the costs.  Glatfelter argued that it did not cause any of the contamination in OU-4 and therefore was not liable for the costs of cleaning up OU-4. 

As to NCR, the Seventh Circuit first addressed the question of what the appropriate metric should be for measuring the contamination caused by each party.  The District Court, after a lengthy trial, had viewed the harm as “binary,” in the sense that contamination in concentrations above EPA’s maximum safety threshold of 1.0 ppm of PCBs was harmful; whereas, concentrations below that level were not.  The Seventh Circuit rejected that “on-off switch” approach on the ground that the evidence at trial had shown that the dividing line between “harmfulness and geniality” was much more subtle.  The Seventh Circuit reviewed the various metrics used by EPA to measure harm and settled on “surface weighted average concentrations” (SWAC) of 0.25 ppm throughout OU-4 as the appropriate value.  Even that value, however, could not be viewed as “binary,” according to the Seventh Circuit , because lesser concentrations still could pose risks of harm.  

This analysis led the Seventh Circuit to reconsider whether remediation costs can be a useful approximation of the contamination caused by each party.  The District Court had concluded that, like contamination levels, remediation costs were “binary” in the sense that “sediment with PCB concentrations below 1.0 ppm would impose no remediation costs, while sediment with PCB concentrations above 1.0 ppm would always impose about the same remediation costs.”  The Seventh Circuit said “[w]e think the district court got this wrong as well.”  Instead, “remediation costs increase with the degree of contamination above 1.0 ppm.  As a result, remediation costs are still a useful approximation of the degree of contamination caused by each party.”  As the Seventh Circuit explained, that is so because “the cost of the remedial approach in a particular area is positively correlated with the level of contamination near the surface of that area, which contributes to the operable unit’s SWAC, and consequently, the harm.”

The Seventh Circuit concluded:

As a result, we think the harm would be theoretically capable of apportionment if NCR could show the extent to which it contributed to PCB concentrations in OU4.  And if NCR cleared that hurdle, we think a reasonable basis for apportionment could be found in the remediation costs necessitated by each party.

The Seventh Circuit then went on to agree with the District Court’s critique of  expert opinion offered by NCR to estimate the percentage of mass it contributed to OU-4, but faulted the District Court for failing to explain why it rejected an alternative approach to estimating mass-percentages.  The Seventh Circuit did not say whether the estimated mass-percentages, if properly done, would have proven that the harm in OU-4 was “theoretically” capable of apportionment.  Instead, the Seventh Circuit reversed the District Court’s rejection of the divisibility defense and remanded for further fact finding.

As to Glatfelter, the Seventh Circuit characterized its divisibility argument as an “all-or-nothing game,” in the sense that Glatfelter argued that none of its PCBs made their way into OU-4, obviating the need, in Glatfelter’s view, to approximate its share of the PCB contamination in OU-4.  The Seventh Circuit thoroughly analyzed the testimony of Glatfelter’s expert (to the point of proposing complex algebraic formulas to demonstrate his testimony was unsound), concluding “Glatfelter failed to prove that the PCB discharges for which it is responsible were not a sufficient, or at least a necessary cause of at least some of the contamination in OU-4.  Therefore, the district court correctly ruled against Glatfelter on its all-or-nothing divisibility defense.”

So what do Superfund practitioners learn from Glatfelter?  Some things we already understood are confirmed.  Divisibility analysis is a two step process; the initial and far more challenging step is to prove that the harm is “theoretically” capable of apportionment.  The burden of proof on that issue rests with a defendant advancing a divisibility of harm defense.  Glatfelter now instructs that the test to determine whether a harm is theoretically capable of apportionment depends upon the extent to which the defendant contributed to concentrations of contaminants at the site, an obvious subject for expert testimony.  The battle on that issue can be expected to resume in the District Court.  To the extent the first step is cleared, a reasonable basis for apportionment could be found in the remediation costs necessitated by each party.  

More than theoretical is the fact the Fox River Site will produce more opinions for guidance to Superfund practitioners in this confusing and difficult area of the law. 

More Chinks in the Permit Shield Armor

Posted on September 24, 2014 by Eric Fjelstad

The history of the Clean Water Act (CWA) permit shield provision was recently addressed in a blog post by David Buente on July 31, 2014.  This post covers an update on one of the referenced cases that was pending before the Ninth Circuit Court of Appeals.  The case Alaska Community Action on Toxics v. Aurora Energy Services, LLC (“ACAT”) involved a facility in Seward, Alaska that conveyed coal onto ships where it was exported into international markets.  The facility had been covered under the Multi-Sector General Permit (“MSGP”) since the mid-1980s.  The MSGP authorized the discharge of stormwater and also identified eleven categories of non-stormwater discharges which were authorized under the MSGP.  None of these categories covered discharges of coal.

The plaintiffs filed a CWA citizens suit in early 2010 alleging that coal was discharged from a conveyor into the ocean during ship loading operations and that these discharges were not covered under the MSGP.  The alleged discharges involved small chunks of coal falling from the underside of the conveyor belt on the “return” trip and incidental dust or chunks unintentionally released during the loading of ships.  The district court granted summary judgment in favor of the facility, applying the principles in  Piney Run Pres. Ass’n v. City Comm’rs, 268 F.3d 255 (4th Cir. 2001).

On appeal, the Ninth Circuit reversed, holding that the MSGP did not cover discharges of coal.  The court found that all non-stormwater discharges were prohibited except those identified in the list of eleven permissible non-stormwater discharges.  The Ninth Circuit’s decision is most striking for what it does not say.  First, there is no discussion in the opinion of the fact that the permittee had, in fact, disclosed its coal discharges during the permitting process.  Second, the court places no weight - indeed, did not even mention - the fact that EPA and its state counterpart actively oversaw the facility, including its discharges of coal.  In contrast, the district court specifically found that all the relevant parties - EPA, the Alaska Department of Environmental Conservation (“ADEC”), and the permittee - viewed the MSGP as extending to discharges of coal.  As the district court found, “the discharges were not only ‘reasonably contemplated’ by EPA, but were actively regulated by the agencies under the General Permit.”

The Ninth Circuit’s decision in ACAT should make any MSGP permittee shudder since it suggests that many facilities may not be properly permitted.  Specifically, if a non-stormwater discharge is not identified on the list of permissible non-stormwater sources, ACAT suggests that discharge is not covered by the MSGP.  The case also reaffirms the point that reliance on agency communications and “course-of-dealing” with agencies can be a perilous exercise.

Time will tell whether the ACAT court’s analysis will be applied outside of the MSGP context to IPs and other GPs.  In the meantime, when considering permit shield issues, permittees and their counsel would be wise to carefully focus on the language of permits and what a permit purports to cover (and not cover).

You Can’t Estop the Government — Even When It Wants to Be Estopped

Posted on August 25, 2014 by Seth Jaffe

On August 12th, the 9th Circuit Court of Appeals issued a decision that arguably explains everything from why the Tea Party exists to why otherwise calm and sane executives suddenly lose all their hair. Perhaps most astounding, the decision is clearly correct. Perhaps the law is an ass.

In 2008, Avenal Power submitted an application to EPA for a PSD permit to construct a new 600 MW natural gas-fired power plant in Avenal, California. Although section 165(c) of the Clean Air Act requires EPA to act on such applications within one year, EPA failed to do so.

Subsequently, and before EPA ever did issue a permit, EPA revised the National Ambient Air Quality Standard for NOx. Avenal Power apparently could demonstrate that emissions from the new plant would comply with the old NAAQS, but could not demonstrate that it would not cause an exceedance of the new NAAQS. After some waffling, EPA took the position that it could grandfather the permit application and review it under the prior NAAQS. Citizen groups appealed and the Court of Appeals held that EPA had no authority to grandfather the application.

To the Court, this was a simple application of Step 1 of Chevron. The Court concluded that sections 165(a)(3) and (4) and 110(j) of the CAA unambiguously require EPA to apply the NAAQS in effect at the time a permit is issued. Thus, EPA has no discretion to grandfather permit applications, even though EPA was required by law to issue a permit decision at a time when more lenient requirements were in effect.

I think that the Court’s decision is clearly right on the law. The statutory language seems unambiguous.  But what did the Court have to say to those who feel that the result is inequitable, because Avenal was legally entitled to a decision in one year, and would have obtained its permit if EPA had acted timely? Pretty much, tough luck:

Finally, EPA relies heavily on the argument that the equities weigh in favor of Avenal Power. In short, we agree. Avenal Power filed its application over six years ago, and endeavored to work with EPA for years, even after filing suit, to obtain a final decision. But however regrettable EPA’s treatment of Avenal Power has been, we simply cannot disregard the plain language of the Clean Air Act, or overlook the reason why an applicant must comply with revised and newly stringent standards —that is, “to protect and enhance the quality of the Nation’s air resources so as to promote the public health and welfare and the productive capacity of its population.” Honoring the statute’s plain language and overriding purpose, we must send EPA and Avenal Power back to the drawing board. (Emphasis added.)

In other words, EPA screwed up, and Avenal Power got screwed. Imagine having to explain that to your client.

 

law is an ass

Engagement, Proportionality and Cooperation: Proposed Changes to the Federal Rules of Civil Procedure

Posted on July 3, 2014 by John Barkett

The Advisory Committee on Rules of Civil Procedure has taken a major rulemaking step to bring down the costs of federal court litigation.  Encouraging judges to become more engaged earlier in litigation, modifying the scope of discovery, and eliminating the circuit conflicts on the exercise of inherent authority in sanctioning the loss of electronically stored information are among the changes that will be made if the amendments are adopted.

In my October 17 2013 blog post, I described proposed changes to the Federal Rules of Civil Procedure published for public comment by the Advisory Committee on Civil Rules (of which I am a member).  The Committee received about 2,300 pubic comments on the proposed amendments.  There were three public hearings and the Committee listened to nearly 125 commenters in what amounted to about 25 hours of oral presentations.

The Advisory Committee assimilated these comments and at its meeting on April 10-11, 2014, adopted a final set of amendments.  On May 29-30, the Standing Committee on Rules of Practice and Procedure adopted the proposed amendments.  The votes of both Committees were unanimous.

The proposed reduction in the presumptive limits on depositions and interrogatories, and the proposed creation of a presumptive limit on requests for admissions (except as to authenticity of documents) received the greatest public attention.  The Committee was persuaded by the commenters to leave the existing limits in place and not to create a limit on requests for admission.

The change to Rule 1 received the least amount of public attention.  If it becomes law, it will provide that the rules will be “employed by the court and the parties” to secure the just, speedy, and inexpensive determination of every action.  Cooperation was on the minds of the Advisory Committee as a means to help bring down the costs of litigation without compromising a lawyer’s duty of diligence in representing a client.

Slight changes were made to Rule 16 to encourage district court judges to make maximum use of the initial case management conference to develop an understanding of the claims and defenses and then to keep the parties focused on discovery that is relevant to those claims and defenses.  In addition, Rule 16(b)(3) adds to the potential list of items included in a scheduling order that directs a party to request a conference with the court before moving for an order relating to discovery—consistent with the belief that addressing discovery disputes at their incipiency will reduce costs to all parties.

The public comments also affected the change to Rule 26(b)(1), which addresses the scope of discovery.  New Rule 26(b)(1) contains these changes:

• the words “proportional to the needs of the case” have been added to provide an additional contour on discovery that is otherwise “relevant to any party’s claim or defense”;
• the limits on discovery in current Rule 26(b)(2)(C) (the importance of the issues at stake in the action, amount in controversy, importance of discovery in resolving the issues, and whether the burden or expense of the proposed discovery outweighs its likely benefits) were moved directly into (b)(1) as factors to be considered in evaluating proportionality;
• an additional proportionality factor has been added: “the parties’ relative access to relevant information”;
• the current sentence allowing discovery of information “relevant to the subject matter involved in an action” upon a showing of good cause has been deleted; and
• the sentence, “Relevant information need not be admissible at the trial if the discovery appears reasonably calculated to lead to the discovery of admissible evidence,” has been replaced with this sentence: “Information within this scope of discovery need not be admissible in evidence to be discoverable.”

Similar to the goal of greater engagement by the court under Rule 16’s changes, the changes to the scope of discovery are designed to reduce discovery costs by encouraging courts and parties to focus more thoughtfully on what information is important to a fair resolution of a claim.

The Committee decided to replace existing Rule 37(e) with new Rule 37(e) and to leave in the limitation of Rule 37(e) to electronically stored information.  Proposed Rule 37(e) creates a uniform standard nationwide for issuance of an adverse inference instruction for the loss of electronically stored information after a duty to preserve is triggered.  The Advisory Committee chose a bad faith standard (followed in the 5th, 10th, and 11th Circuits) over the negligence standard (followed in the 2nd Circuit).  Specifically, proposed Rule 37(e) provides that, “if electronically stored information that should have been preserved in the anticipation or conduct of litigation is lost because a party failed to take reasonable steps to preserve it, and it cannot be restored or replaced through additional discovery,” then a court

(1) upon finding prejudice to another party from loss of the information, may order measures no greater than necessary to cure the prejudice; or

(2) only upon finding that the party acted with the intent to deprive another party of the information’s use in the litigation, may

(A) presume that the lost information was unfavorable to the party;

(B) instruct the jury that it may or must presume the information was unfavorable to the party; or

(C) dismiss the action or enter a default judgment.

There will be changes relating to document production.  I note two of them here.  Rule 34 will require that objections to document requests be made “with specificity” and that an objection state whether any responsive materials are being withheld on the basis of the objection.  Proposed Rule 26(d)(2) will allow delivery of a Rule 34 request more than 21 days after service but the request will not be deemed served until after the Rule 26(f) conference.

There will be changes relating to document production.  I note two of them here.  Rule 34 will require that objections to document requests be made “with specificity” and that an objection state whether any responsive materials are being withheld on the basis of the objection.  Proposed Rule 26(d)(2) will allow delivery of a Rule 34 request more than 21 days after service but the request will not be deemed served until after the Rule 26(f) conference.

Rule 84 relating to the forms that appear at the end of the Federal Rules of Civil Procedure has been abrogated.  There were very few public comments on this proposal consistent with the sentiment expressed by many to the Committee that the forms were not used enough to subject them to change through the rulemaking process.  Instead, the Administrative Office of the United States Courts will post forms on its website.  The time limit for service in Rule 4 has also been reduced from 120 days to 90 days.

The next stop for the proposed amendments is the Judicial Conference in September 2014.  Assuming a favorable vote there, the amendments will be transmitted to the Supreme Court and then the Congress.  Assuming no action by either body, they will become part of the Rules of Civil Procedure December 1, 2015.

MY PRACTICE IN TRUST?

Posted on June 24, 2014 by George von Stamwitz

The $5.15 billion Tronox environmental settlement in April impressed many of us with the challenge of monetizing decades of real and perceived environmental risk.  It called to mind the even larger $9 billion ASARCO bankruptcy in 2009.  With almost $15 billion in trust between just two environmental bankruptcies, it seems that environmental practitioners are putting on their bankruptcy hats with increasing frequency.  What has flown under the radar is growing importance of trusts to the life of an environmental lawyer dealing with remediation.

These massive bankruptcy cases monetizing future environmental risk merely shed light on the fact that mergers, acquisitions and real estate transactions have increasingly been utilizing trusts to deal with long term liability.  Virtually every liability assumption (a/k/s risk transfer) transaction results in a trust or escrow account.  The environmental lawyer may be reasonably inquiring at this point, “Why does this matter to me; we have trust lawyers, after all?” The answer is that the language of the trust is really like a state of the art consent decree governing a remediation.  The critical questions of remediation goals, cessation of active remedy, dispute resolution, default, insurance, remedy takeover, penalties, bonus payments for success etc., need to be designed into the trust.

In addition to the environmental design issues, there are a host of related legal issues to consider: May our client write off financial reserves after creation of the trust?  Are payments to the trust deductible when made?  How should trust assets be invested? How much control of disbursement is allowable to a donor and still reap tax and accounting benefits?

The tax code recognizes two types of trusts: (1) a Qualified Settlement Fund (QSF)and (2) an Environmental Remediation Trust (ERT).  While QSFs are limited to claims that involve settlements with regulators, ERTs provide many of the same tax advantages as QSFs but apply to a broader set of circumstances.  

One of the joys of the environmental practice is the intersection between environmental practice and many other areas of law.  The intersection of remediation projects with the law of trusts is large and growing.

Imposing Repose: The Supreme Court Limits CERCLA § 309

Posted on June 19, 2014 by Michael Wall

On June 9th, the Supreme Court ruled, in CTS Corp. v. Waldburger, that § 309 of CERCLA does not preempt state statutes of repose. Section 309 requires state statutes of limitations for injuries from hazardous substances releases to run from the date the plaintiff knew or should have known of the injury caused by the release. But in CTS, the Court held that state statutes of repose are not statutes of limitations, and are not governed by section 309.

That conclusion was hardly self-evident. While section 309 explicitly applies to statutes of limitation, and does not specifically mention statutes of repose, the later have often been understood as a species of the former. When section 309 was enacted, Black’s Law Dictionary explained that “Statutes of limitations are statutes of repose.” Congress itself often referred to statutes of repose as “statutes of limitation.” And the very year after Congress enacted section 309, the Supreme Court itself described application of a two-year state statute of limitations as “wholly consistent with . . . the general purposes of statutes of repose.” The meaning of these terms has diverged in more recent years, but that divergence was not well-established when Congress enacted section 309.

The Court’s conclusion that Congress recognized a clear distinction between statutes of limitation and statutes of repose thus required the Court to assume that Congress used these terms with more precision in section 309 than Congress had done on other occasions, with more precision than (and in conflict with) the then-current edition of Black’s, and with more precision then the Supreme Court itself used the terms a year later. It is not often that this Court holds Congress’s legal acumen in such high regard.

The Court’s lead argument for why Congress did understand this distinction was that page 256 of the Section 301(e) Study Group Report—an expert report submitted to Congress and referenced in the Conference Committee Report—distinguished between these terms. This is surprising analysis. The CTS majority includes avowed skeptics of relying on traditional legislative history. Those justices might previously have been expected to be even more skeptical of attempts to discern congressional intent from statements buried in expert reports referenced by traditional legislative history. Not so, it seems—or at least, not so for this one opinion.

But does the Study Group Report even make the same distinction as the Court? The report recommends that:

"states . . . remove unreasonable procedural and other barriers to recovery in court action for personal injuries resulting from exposure to hazardous waste, including rules relating to the time of accrual of actions."

The Report then recommends that “all states that have not already done so, clearly adopt the rule that an action accrues when the plaintiff discovers or should have discovered the injury or disease and its cause.” That is what Congress effectively did—albeit for the states—in section 309. The Report then states: “This Recommendation is intended also to cover the repeal of statutes of repose which, in a number of states have the same effect as some statutes of limitation.”

This sentence, the Court concludes, shows that Congress must have known that a law that preempts state statutes of limitation would not also preempt state statutes of repose. But is it not at least as likely that any Member of Congress who actually read page 256 of the Study Group Report would have thought that adopting the discovery rule for all states would “also … cover the repeal of statutes of repose”?

Justice Scalia once wrote that “Congress can enact foolish statutes as well as wise ones, and it is not for the courts to decide which is which and rewrite the former.” Reading CTS Corp., one cannot escape the notion that the Court was willing to stretch its usual interpretive rules in order to apply what it considered a wise result to an arguably ambiguous statute. It did so in the apparent service of the policy of repose. But the holding will bring little peace in a state with a statute of repose to individuals who learn, years too late, that they or their children have been sickened by contaminants that a government agency or business released long ago.

Government Bullies? Not So Much

Posted on June 18, 2014 by David Uhlmann

It has been more than 30 years since EPA hired its first criminal investigators, but questions remain about when environmental violations will result in criminal charges.  Critics frequently portray environmental crime as a poster child of “over-criminalization” with a recent example Senator Rand Paul in his book Government Bullies:  How Everyday Americans Are Being Harassed, Abused, and Imprisoned by the Feds.

To address these concerns, I have suggested that prosecutors should limit criminal charges to violations that involve one or more of the following aggravating factors: (1) significant environmental harm or public health effects; (2) deceptive or misleading conduct; (3) operating outside the regulatory system; or (4) repetitive violations. By doing so, prosecutors would focus on violations that undermine pollution prevention efforts and avoid targeting defendants who committed technical violations or were acting in good faith.

I subsequently developed the Environmental Crimes Project to determine how often the aggravating factors I identified were present in criminal prosecutions. With the assistance of 120 students at the University of Michigan Law School, I analyzed all defendants charged in federal court with pollution crime or related Title 18 offenses from 2005-2010. We examined court documents for over 600 cases involving nearly 900 defendants to create a comprehensive database of environmental prosecutions.

Our research revealed that prosecutors charged violations involving aggravating factors in 96% of environmental criminal prosecutions from 2005-2010. More than three-quarters of the violations involved repetitive conduct, and nearly two-thirds involved deceptive or misleading conduct. Moreover, we found that 74% of the defendants engaged in conduct that involved multiple aggravating factors. And, for 96% of the defendants with multiple aggravating factors, one of the first three factors (harm, deceptive conduct, or operating outside the regulatory system) was present along with repetitiveness.

These findings support at least three significant conclusions. First, in exercising their charging discretion, prosecutors almost always focus on violations that include one or more of the aggravating factors. Second, violations that do not include one of those aggravating factors are not likely to be prosecuted criminally. Third, prosecutors are most likely to bring criminal charges for violations that involve both one of the first three factors and repetitiveness—and are less likely to bring criminal charges if that relationship is absent.

I plan to update my research with data from 2011-2012 and to examine a representative sample of civil cases using the same criteria. But my research already should provide greater clarity about the role of environmental criminal enforcement and reduce uncertainty in the regulated community about which environmental violations might lead to criminal charges.  My research also suggests that prosecutors are exercising their discretion reasonably under the environmental laws and should lessen concerns about over-criminalization of environmental violations.

For more, please see David M. Uhlmann, Prosecutorial Discretion and Environmental Crime, 38 HARV. ENVTL. L. REV. 159 (2014).

If what goes underground doesn’t stay underground, what then?

Posted on June 13, 2014 by Todd D. True

If it’s wastewater from a treatment plant pumped into injection wells and it ends up in the ocean, you need an NPDES permit under the Clean Water Act.  At least that’s the conclusion from the U.S. District Court for the District of Hawaii in Hawai’i Wildlife Fund v. County of Maui, decided May 30, 2014.

            In Hawai’i Wildlife Fund, a case in which my colleague David Henkin in our Honolulu office represented the plaintiffs, the Court considered the following facts:  The County of Maui operates a wastewater treatment plant located about a half mile from the ocean that pumps millions of gallons of treated wastewater into several injection wells each day.  Within the last few years, EPA and others performed a tracer dye study because of concern that much of this wastewater was migrating through a groundwater aquifer and emerging in the ocean off the coast of Maui through seeps and springs.  The results of this study confirmed that, for a number of the injection wells, this was the case, even though it took several weeks for the dye to move from the wells into the ocean through the groundwater aquifer.  Based on other information, the County apparently had been aware since 1991 that its wastewater discharges were reaching the ocean.  Plaintiffs, Hawai’i Wildlife Fund and others, brought a citizens suit under the Clean Water Act asserting that because the County wastewater treatment facility had no NPDES permit, the discharge of wastewater into the ocean via the injection wells and groundwater was an illegal, unpermitted discharge.

U.S. District Court Judge Susan Mollway agreed and granted the plaintiffs summary judgment.  The Court was not deterred by the County’s argument that it had an application for an NPDES permit pending with the State or other preliminary matters.  Instead the Court observed that “the only area of dispute between the parties is whether the discharges into the aquifer beneath the facility constitute a discharge into ‘navigable waters[,]’” the operative language of the Clean Water Act in this case.

On this point, the Court turned to the Supreme Court’s Rapanos decision and concluded that waters regulated by the CWA are broader than waters that are “navigable-in-fact,” hardly a controversial conclusion.  The Court then went on to conclude that “liability [for an unpermitted discharge] arises [under the CWA] even if the groundwater . . . is not itself protected by the [Act] as long as the groundwater is a conduit through which the pollutants are reaching [the ocean].”  As the Court observed, “[t]here is nothing inherent about groundwater conveyances and surface water conveyances that requires distinguishing between these conduits under the [CWA].”  In the Court’s view, as long as the groundwater served as a conveyance for pollutants that reached navigable waters, liability for an unpermitted discharge would attach.

The Court also concluded that liability for an unpermitted discharge arose under an alternative test which the parties drew from the Ninth Circuit’s post-Rapanos decision in Northern Cal. River Watch v. City of Healdsburg, even though the Court expressed skepticism about the applicability of this test where groundwater is involved.  Under this alternative test, because there was a clearly discernible nexus, i.e., the groundwater aquifer, between the County’s discharge of pollutants into injection wells and its subsequent emergence in the ocean, and because the discharge of pollutants to the ocean significantly affected the “physical, biological, and chemical integrity” of the ocean in the area of the seeps and springs through which the discharge emerged, liability for an unpermitted discharge also would attach.

Next up: civil penalties and remedy.

BP Tightens its Grip on the Deepwater Horizon Checkbook

Posted on June 9, 2014 by Jarred Taylor

BP Exploration and Production, Inc. (“BP”) was recently dealt another blow in its fight to reinterpret its multibillion dollar settlement for economic and property losses arising from the 2010 Deepwater Horizon disaster when the Fifth Circuit refused to rehear BP’s appeal of a prior district court ruling on “causation nexus” requirements in the agreement.  In December 2013, U.S. District Court Judge Carl Barbier ruled that individuals and businesses do not have to prove that they were directly harmed by the oil spill in order to get paid under the terms of the settlement agreement.

In 2012, nearly two years after the spill, BP reached a settlement with the Plaintiffs’ Steering Committee (which acts on behalf of individual and business plaintiffs in the multi-district litigation proceedings) to resolve hundreds of thousands of private economic, property damage, and medical claims stemming from the Deepwater Horizon explosion and oil spill.  BP has disputed many of the economic and property damage claims brought pursuant to the settlement agreement.  BP argues that the claims administrator was incorrectly interpreting the meaning of the settlement agreement, particularly with respect to whether or not a claimant must submit evidence that its losses were directly caused by the spill.

Judge Barbier, who is presiding over the multidistrict litigation stemming from the Deepwater Horizon disaster, ruled that the settlement agreement did not contain a causation requirement beyond the revenue and related tests set out in the agreement, opening BP’s checkbook to economic loss claimants who may not be able to trace the cause of their damages back to the 2010 disaster.  BP already had revised its original $7.8 billion estimate of its potential costs under the settlement agreement up to about $9.2 billion.  Later, as it began challenging economic loss claims, BP proclaimed it could no longer provide a reliable estimate of the ultimate cost of the deal.   

BP appealed the district court’s ruling to the Fifth Circuit Court of Appeals, claiming in December that it had to pay hundreds of millions of dollars to businesses and individuals that exaggerated losses from the disaster.  The Fifth Circuit affirmed the district court’s ruling in March 2014, and on May 19, declined to rehear BP’s appeal. In a strongly worded dissent joined by two other justices, though, Judge Edith Clement argued that the district court’s rulings would “funnel BP’s cash into the pockets of undeserving non-victims” of the 2010 spill, adding that the appeals court had made itself “party to this fraud” by rejecting BP’s arguments. Judge Clement concluded that “another court surely must resolve this.” BP clearly agrees and has vowed to appeal its case to the U.S. Supreme Court, declaring that “no company would agree to pay for losses that it did not cause, and BP certainly did not when it entered into this settlement.” 

Ted Olsen, BP’s lead attorney, said in a 60 Minutes segment in May that the company would take its argument “as far as it is necessary to go to make sure that this settlement agreement is construed properly.” The New Orleans Times-Picayune reports that some experts following the case expect that the Supreme Court will not take up the case, but suspect that BP’s true motive may not be to win on appeal, but to simply prolong the litigation and delay paying claims. The Fifth Circuit lifted its stay on payout of settlement claims, and the Supreme Court just rejected BP’s request that the Supreme Court reimpose the stay pending filing and disposition of its petition for writ of certiorari. 

Meanwhile, in the midst of its attempt to walk back from the economic and property loss settlement it negotiated and—at the time—happily agreed to, BP rejected a $147 million claim from the National Oceanic and Atmospheric Administration (“NOAA”) demanding additional funds to conduct its ongoing Natural Resource Damage Assessment (“NRDA”) activities related to the Deepwater Horizon oil spill. NRDA is the process created by the Oil Pollution Act (“OPA”) and its implementing regulations that authorizes natural resources Trustees to assess injuries to natural resources caused by oil spills and spill response activities, and to restore the injured resources. OPA requires that the party or parties responsible for the oil spill pay for the reasonable costs incurred by the Trustees to carry out the NRDA and restoration. 

Last July, NOAA submitted a claim to BP for the estimated costs of NRDA activities that NOAA planned to implement in 2014. NOAA’s claim includes $2.2 million for research on the recovery of coastal wetlands, more than $10 million to remedy damage to dolphin and whale habitat, and $22 million for oyster habitat restoration. The Financial Times (free subscription required) reports that BP rejected the majority of NOAA’s requests, saying it was concerned by “the lack of visibility and accountability” in the process, and the unwillingness of the Deepwater Horizon NRDA Trustees (a handful of U.S. federal agencies and five Gulf Coast state governments) “to engage in technical discussions of the substantive issues.” The Financial Times reports that “BP said it had paid for work that was not done or done properly, been double-billed for the same study, and not been allowed to see research findings that it had been told would be shared”—evidence BP argues could be used at the trial over civil penalties to show that ecological damages from the spill are much less than once feared. 

According to an April 30 report on BP’s website, BP has already paid nearly $1.5 billion to federal and state government agencies for spill response, NRDA activities, and other claims related to the Deepwater Horizon spill, and over $11 billion to individuals and businesses. I need to disclose, too, that my firm is assisting several claimants to the BP settlement fund.

EPA Meets Regional Uniformity Requirement – the Hard Way

Posted on June 3, 2014 by Robert Wyman

On Friday, in a case argued by my colleague, Greg Garre and briefed by Leslie Ritts, the D.C. Circuit decided a closely watched case construing the EPA’s “regional uniformity” requirement under the Clean Air Act (CAA.)  The court declared the agency’s directive to regional offices outside the Sixth Circuit to ignore a 2012 Sixth Circuit decision interpreting the CAA’s “single source” requirements as inconsistent with EPA’s uniformity requirement. The decision brings to light an important component of the CAA’s nationwide scheme.

Under the CAA, any “major source” of pollution is subject to certain heightened requirements.  EPA regulations provide that multiple pollutant-emitting activities will be considered together for purposes of the “major source” analysis if they are—among other things—“adjacent.”  But EPA has, in recent years at least, given “adjacent” an expansive and atextual meaning, concluding that even facilities separated by considerable physical distance should be deemed “adjacent” as long as they are “functionally interrelated.” 

In 2012, the Sixth Circuit in Summit Petroleum Corp. v. EPA held that EPA’s interpretation was “unreasonable and contrary to the plain meaning of the term ‘adjacent.’”  The EPA opted not to seek Supreme Court review of the Sixth Circuit’s ruling.  A few months after the Summit decision, however, EPA circulated a directive to the Regional Air Directors informing them that the agency would abide by the Sixth Circuit’s decision within the Sixth Circuit, but that “[o]utside the [Sixth] Circuit, at this time, the EPA does not intend to change its longstanding practice of considering interrelatedness in the EPA permitting actions.”

The National Environmental Development Association’s Clean Air Project (NEDA/CAP), an industry group, filed a petition for review in the D.C. Circuit, challenging the EPA’s “Summit Directive” as contrary to the statute and EPA’s own regulations.  NEDA/CAP explained that EPA’s Directive would impermissibly place NEDA/CAP members operating outside of the Sixth Circuit at a competitive disadvantage, subject to a more onerous permitting regime than their peers operating within the Sixth Circuit’s jurisdiction.  That disparity between regions, NEDA/CAP explained, was inconsistent with the CAA’s requirement that EPA assure “uniformity in the criteria, procedures, and policies applied by the various regions,” 42 U. S. C. § 7601(a)(2), as well as EPA regulations that similarly require inter-regional uniformity.

On Friday, the D.C. Circuit issued a decision agreeing with NEDA/CAP in National Environmental Development Association’s Clean Air Project v. EPA. Rejecting EPA arguments that the policy could only be challenged in the context of a discrete stationary source permit application, the Court held that NEDA/CAP’s blanket challenge to the EPA’s creation of two different permitting regimes across the country could be challenged today because of the competitive disadvantages it created for companies operating in different parts of the country.  

On the merits, the Court concluded that maintaining a standard in the Sixth Circuit different from the one applied elsewhere in the country was inconsistent with the agency’s regulatory commitment to national uniformity.  The Court recognized that an agency is ordinarily free, under the doctrine of “intercircuit nonacquiescence,” to refuse to follow a circuit court’s holding outside that court’s jurisdiction.  Here, however, the Court held that EPA’s own regulations required it to “respond to the Summit Petroleum decision in a manner that eliminated regional inconsistency, not preserved it.”  Finding that the agency’s “current regulations preclude EPA’s inter-circuit nonacquiescence in this instance,” the Court vacated the directive.

The decision is noteworthy in a number of respects.  Not only does the decision roundly reject EPA’s threshold objections to NEDA/CAP’s petition (standing, finality, and ripeness), but it appears to represent the first time a court has applied EPA’s uniformity regulations to invalidate a rule.  The decision therefore puts a light on an important component of the CAA’s nationwide enforcement scheme—the “regional uniformity” requirement.    

Virgin Petroleum Product Quandary in Rhode Island

Posted on May 22, 2014 by Richard Sherman

A case working its way through the Rhode Island state court system, Power Test Realty Co. Ltd. Partnership v. Sullivan, No. PC 10-0404 (R.I. Super. Ct. Feb. 19, 2013), poses a dilemma regarding the obligation to remediate releases of virgin petroleum product.

Under the Rhode Island equivalent of CERCLA, virgin petroleum product is exempt from the definition of hazardous substances. R.I.G.L. 23-19.14-3(c), (i). Releases of virgin petroleum product are therefore not subject to the imposition of joint, several, strict and retroactive liability. One would accordingly expect that any obligation to remediate virgin petroleum product releases would be based on causation. Rhode Island oil pollution statutes and regulations appear to impose liability based on causation only.

Nevertheless, the Rhode Island Department of Environmental Management and the Rhode Island Superior Court have taken the position that (1) the obligation of a current landowner to remediate a release of virgin petroleum product that occurred before acquisition of title arises on the theory that the term “discharge” under the state oil pollution statute includes “leaching” and (2) leaching of pre-acquisition petroleum product into the groundwater constitutes a passive and continuing discharge for which the current landowner is liable to remediate.

The Superior Court held that causation is irrelevant under the state oil pollution control statute and regulations. This ruling clearly contradicts the intent of the legislature to carve out virgin petroleum product from a no-fault liability scheme.

This case of first impression is now before the Rhode Island Supreme Court on a writ of certiorari, Docket No. SU-13-0076. Practitioners await with interest how the Court will work its way through this issue. Stand by for some tortured reasoning if the Superior Court ruling is upheld.