In the home stretch for 2015, Courts across the nation issued environmental decisions of note:

U.S. Supreme Court

Oral argument in the case of FERC v. Electric Power Supply Association was held in October of 2015, and a decision may be announced shortly. The controversy involves complex provisions in the Federal Power Act (FPA) and the Federal Energy Regulatory Commission’s authority under the law to regulate the practices of wholesale electricity markets, which have traditionally been considered to be reserved for state regulation. The Court of Appeals for the District of Columbia Circuit ruled against FERC, setting the stage for this appeal to the U.S. Supreme Court. Some of the limits placed on federal regulatory authority that were discussed in the recent decision of the Court in Michigan, et al., v. EPA figure prominently in the briefs filed with the Court.

On December 11, 2015, the Court agreed to hear the case of Army Corps of Engineers v. Hawkes Company. The Eighth Circuit Court of Appeals held that the Corp of Engineer’s administrative determination that the property at issue contains “Waters of the United States” triggering the Corps of Engineers’ oversight, was a “final action” that was subject to judicial review under the Administrative Procedure Act (APA). The Eighth Circuit’s ruling conflicts with a recent ruling on similar facts by the U.S. Court of Appeals for the Fifth Circuit, whose decision is also awaiting the Court’s disposition.

Federal Circuit Court Decisions

These federal circuit court opinions are cases are organized by circuit and date of ruling:

1.  SEC’s Conflict Minerals Rule Again Held to be Unconstitutional
A recent ruling by the U.S. Court of Appeals for the District of Columbia Circuit, in National Association of Manufacturers v. SEC, held that the SEC’s “conflict minerals” rule’s compelled disclosures—affecting the acquisition of certain minerals produced in the Democratic Republic of the Congo—and indeed Section 1502 of the Dodd-Frank Act, violate the First Amendment and are unconstitutional. Two Senior Circuit judges (Randolph and Sentelle) formed the majority, and Judge Srinivasan dissented. On November 9, 2015, the Court of Appeals rejected the SEC’s petition requesting an en banc rehearing of this important First Amendment/Commercial Speech case.

2.  Court of Appeals Rejects FERC’s Geographic Proximity Text for Municipal Preference under the Federal Power Act
Developers subject to the FPA should carefully consider the implications of the U.S. Court of Appeals for the District of Columbia Circuit’s recent opinion on the scope of the “municipal preference” under Section 7(a) of the FPA.  The Court of Appeals, in Western Minnesota Municipal Power Agency, et al., v. FERC, decided November 20, 2015, considered the breadth of the “municipal preference” in Section 7(a) of the FPA, including the meaning of “municipality,” and declined to support FERC’s development of a “geographic proximity test” for municipalities to qualify for the preference. Under the Court of Appeal’s ruling, a municipality qualifies for the municipal preference regardless of its proximity to the location of the development. Developers may now be exposed to greater competition for developments with municipalities having a trump card because they qualify for the municipal preference.

Section 7(a) of the FPA provides that FERC, “[i]n issuing preliminary permits … where no preliminary permit has been issued, [FERC] shall give preference to applications therefor by States and municipalities, provided the plans for the same are deemed by the [FERC] equally well adapted, or shall within a reasonable time to be fixed by the [FERC] be made equally well adapted, to conserve and utilize in the public interest the water resources of the region.” 16 U.S.C. § 800(a). This is generally referred to as the “municipal preference.” Alternatively, where the municipal preference does not apply, and the plans of both are equally qualified, FERC will favor the applicant with the earliest application acceptance date.

In this case, Western Minnesota Municipal Power Agency (Western Minnesota) and a private developer, FFP Qualified Hydro 14, LLC (FFP), submitted applications pursuant to the FPA for a preliminary permit for a hydroelectric project in Polk County, Iowa on the same day. Despite Western Minnesota’s status as a “municipality,” FERC concluded that the municipal preference under Section 7(a) of the FPA applies only to municipalities “located in the vicinity” of the water resources to be developed, and decided against invoking the “municipal preference.”

An appeal was made, and on review, the Court of Appeals noted that Section 7(a) is a “statutory tie-breaker provision favoring states and municipalities over private parties.” It further noted that, as defined in Section 3(7), the term “‘municipality’ neither betrays ambiguity nor leaves a statutory gap for [FERC] to fill,” concluding that “[c]ontrary to the [FERC’s] conclusion, Congress has spoken directly to the question at issue.” The Court of Appeals further found that, FERC, by “concluding that Section 7(a) is ambiguous because it provided no guidance on its scope, [FERC] has ‘manufactured ambiguity’ ‘ignoring [Chevron step one] altogether by failing to articulate how the plain text of Section 7(a) was unclear.’” Accordingly, it concluded that FERC’s conclusion that “there is some geographical limit inherent to what is a ‘municipality’ for purposes of Section 7(a), fails at Chevron step one.”

 3.  EPA’s Conclusion that Its Decision Would Have “Nationwide Scope or Effect” Rejected 
On December 18, 2015, the U.S. Court of Appeals for the District of Columbia, in Dalton Trucking, Inc., et al., v. EPA, et al., rejected EPA’s argument that it could choose the venue for a review of decisions taken pursuant to the Clean Air Act (CAA) by stating it would have “nationwide scope or effect.” Under Section 307(b)(1) of the CAA, venue over challenges to EPA actions lies exclusively with the Court of Appeals for the District of Columbia only if (1) the final action taken by EPA is “nationally applicable” or (2) EPA found that its final action was based on a determination of “nationwide scope or effect” and it published this finding. However, the Court of Appeals held that venue was not proper in the District of Columbia and dismissed the petitions seeking review of EPA’s authorization of the California Air Resources Board (CARB) regulations, in only the DC Circuit.

Section 209(e) of the CAA generally preempts states from adopting standards relating to the control of emissions from in-use nonroad diesel engines. 42 U.S.C. § 7543(e)(91). States are also permitted to adopt such standards if they apply for and receive special authorization from EPA. Once EPA authorizes a state’s standards, other states may adopt and enforce identical standards, subject to certain conditions. On September 13, 2013, EPA granted California’s request for a Section 209(e) authorization for CARB’s “Nonroad Fleet Requirements,” requirements aimed at reducing particulate matter and oxides of nitrogen emissions from in-use nonroad diesel engines.

EPA’s authorization was appealed to the Courts of Appeals for both the District of Columbia and Ninth Circuit by Dalton Trucking. EPA moved to dismiss or, alternatively, transfer Petitioners’ Ninth Circuit action to the DC Circuit. Dalton Trucking and the American Road and Transportation Builders Association argued that the Ninth Circuit is the proper venue for their challenges.

The Court of Appeals for the District of Columbia noted that, “[w]hen a party challenges final actions reviewable under section 307(b)(1), venue is determined as follows:

  •  Petitions for review of certain enumerated nationally applicable actions and rules ‘or any other nationally applicable regulations promulgated, or . . . final action taken . . . may be filed only in the United States Court of Appeals for the District of Columbia.’ 42 U.S.C. § 7607(b)(1).
  • Petitions for review of certain enumerated locally or regionally applicable actions ‘or any other final action . . . which is locally or regionally applicable may be filed only in the United States Court of Appeals for the appropriate circuit.’” Id.
  • Petitions for review of ‘locally or regionally applicable’ final actions ‘may be filed only in the United States Court of Appeals for the District of Columbia if such action is based on a determination of nationwide scope or effect and if in taking such action [EPA] finds and publishes that such action is based on such a determination.’” Id.

Upon review, the Court of Appeal confirmed that “[o]n the record before us, we find that EPA’s Nonroad Waiver Decision is not nationally applicable. We also find that EPA neither found that its Nonroad Waiver Decision was based on a determination of nationwide scope or effect nor published such a finding. Therefore, this court is not the proper venue for Petitioners’ challenges.”

4.  A Significant ESA “Critical Habitat” Ruling
On November 13, 2015, the U.S. District Court for the District of Columbia, in Otay Mesa Property, L.P., et al., v. U.S. Department of the Interior, issued a significant “critical habitat” decision, based on the requirements of the Endangered Species Act (ESA). In 2012, the U.S. Department’s Fish and Wildlife Service issued a rule designating 57 acres of land owned by Otay in San Diego County, California as a critical habitat for an endangered species, the Riverside fairy shrimp. Otay plans to build a recycling facility and landfill on its property on a portion of the 56 acres that encompass a one acre vernal pool. Otay estimates that it will take at least ten years to acquire all of the permits and authorizations it will need to build these facilities, which will serve a pressing need of San Diego in the near future. The Fish and Wildlife Service designated these 57 acres as a watershed and critical habitat for this species, but Otay challenged this action as being unsupported by the evidence set forth by the agency, as well as being arbitrary and capricious under the APA.

The District Court held that Otay has standing to make this challenge, but that the agency’s action was not arbitrary and capricious under the APA. Moreover, it found that the agency was not obliged to comply with the National Environmental Policy Act (NEPA) while it decided whether to designate a critical habitat for a protected species. While the Court of the Appeals for the District of Columbia Circuit has not had an occasion to rule on this NEPA issue, the District Court agreed with the Ninth Circuit which has decided that NEPA was not applicable to critical habitat determinations made by the agency. However, the District Court also noted that the administrative record must be supplemented because it does not presently contain the factual basis for the agency’s determination that 56 acres that surround the vernal pool comprised a watershed serving the vernal pool.

 5.  Developer Adequately Pled Antitrust Violations by Local Competitors Stemming from Frivolous Objections to Environmental Permit Applications
On November 12, 2015, the U.S. Court of Appeals for the Third Circuit decided the case of Hanover 3201 Realty, LLC ,v. Village Supermarkets, Inc., et al. Hanover entered into an agreement with Wegmans, a New Jersey supermarket company, to develop a “full-service” supermarket on property owned by Hanover in Hanover, New Jersey. The agreement required Hanover to secure all government permits, including environmental permits, before construction began. If Hanover did not secure these permits in two years, the agreement could be cancelled.

In its complaint, Hanover alleges that when the defendants, operators of more modest supermarkets located in some proximity to the planned development learned of the project, they decided to file numerous administrative and court challenges to these permit applications, simply to “frustrate the entry” of a competitor. The project requires a Flood Hazard permit, a Wetlands permit, and a special street permit because of the impact on traffic. The defendants or their agents objected to all of these permits—which were granted, with conditions—and indeed, it is alleged that the defendants’ ecological consulting firm even suggested that the project would not be a suitable habitat for the Indiana Bat, which is found in this area of New Jersey. Arguing that these complaints were frivolous, Hanover sued the defendants on antitrust grounds.

The majority of the panel hearing the case held that the plaintiff had sufficiently alleged antitrust violations that the defendant’s use of governmental processes was in restraint of trade and not to redress any grievances, and the litigation can proceed.

6.  Court of Appeals Refuses to Compel EPA Administrator’s Testimony
On December 9, 2015, the U.S. Court of Appeals for the Fourth Circuit, in an unpublished opinion, In re: Gina McCarthy, granted EPA’s petition for a writ of mandamus to prevent the district court’s ordered deposition of the EPA Administrator, Gina McCarthy, in ongoing litigation regarding the impact of new EPA CAA rules on the coal-producing regions. The plaintiffs alleged that McCarthy had failed to comply with Section 321(a) of the CAA which provides that the Administrator shall conduct continuing evaluations of potential loss or shifts of employment resulting from EPA’s administration of the CAA. The Court of Appeals was not persuaded that there was a need for her deposition when the public record was already extensive, and that EPA’s failure to comply with the CAA did not constitute prima facie evidence of wrongdoing.

7.  Fifth Circuit Rejects Remand of Class Action to State Court
On December 31, 2015, the U.S. Court of Appeals for the Fifth Circuit, in Joseph Robertson, et al., v. Exxon Mobil Corporation, et al.,  reversed the district court’s finding that the defendants in a class action lawsuit had failed to present sufficient evidence that the federal Class Action Fairness Act (CAFA) permitted the defendants to remove this action from the Louisiana state courts to federal court.

The plaintiffs, residents or property owners in the Harvey, Louisiana, area, alleged that the defendants’ negligent conduct of oil-pipe cleaning operations, which were conducted for many years (1958 to 1994), released harmful quantities of radioactivity causing personal and property damages. The district court held that the defendants had not established that at least one of the plaintiffs’ claim exceeded $75,000.

Reviewing the evidence, the Court of Appeals held that the evidence submitted by the defendants (several oil companies and many oil servicing entities) satisfied the burden imposed by CAFA. The matter was returned to the district court for it to determine whether the second prong of CAFA—the requirement that the total amount in controversy exceeds $5 million—was also satisfied.

8. Civil Penalties Assessed for Deepwater Horizon Spill
On November 30, 2015, the U.S. District Court for the Eastern District of Louisiana, in In re: Oil Spill by the Oil Rig “Deepwater Horizon” in the Gulf of Mexico, on April 20, 2010, assessed Clean Water Act (CWA) civil penalties against Anadarko Petroleum Corporation based on its status as a “co-owner” of the Macondo Well. The District Court held that Anadarko was liable to the U.S. for civil penalties in the amount of $159.5 million. Anadarko, MOEX Offshore 2007 LLC (MOEX) and BP Exploration & Production, Inc. (BPXP) were co-owners of the well, but only BPXP was designated in their working agreement as the operator of the well.

Under the CWA any person who is the owner, operator or person in charge of a facility from which oil is discharged without a permit is subject to a civil penalty. The District Court noted that, under the law, Anadarko could in theory be assessed a penalty of $3.5 billion, based on an assessment of the maximum penalty of $1100 per barrel applied to the release of 3,190,000 barrels of crude oil into the Gulf of Mexico. However, the law requires that penalties be assessed on the judge’s consideration of the eight statutory penalty assessment factors. The judge then concluded, after weighing all of these factors, that a civil penalty of $159.5 million would be appropriate because Anadarko’s penalty, as a non-operating co-owner, should be limited to $50 per barrel, and not $1100 per barrel.

9. Clean Water Act “Gross Negligence” Finding
On December 23, 2015, the U.S. District Court for the Western District of Louisiana, in U.S. States v. CITGO Petroleum Corporation, et al., held that CITGO Petroleum Corporation was “grossly negligent” under the CWA, and this negligence was the reason why CITGO experienced a massive oil spill several years ago. Earlier this matter was remanded to the  District Court by the Fifth Circuit, which held that it should take another look at CITGO’s conduct.

Initially, the District Court held that CITGO was guilty of simple negligence, and imposed a civil penalty of $6 million. The District Court revisited its findings and asked for additional briefing, and held that the company “chronically failed” to take reasonable preventative measures (such as the installation of adequate wastewater storage facilities) to prevent such a massive spill from taking place. Two million gallons of crude oil were spilled, a vital navigation channel was fouled, commerce was disrupted for ten days, and the local environment was deleteriously affected. Recalculating the penalty in the wake of its finding of gross negligence, the District Court imposed a civil penalty of $81 million.

10.  ICCTA Provisions Preempt State Law Claims for Damages Allegedly Caused by Railroad Company Negligence
On December 28, 2015, the U.S. Court of Appeals for the Eighth Circuit, in Tubbs, et al., v. Surface Transportation Board, et al., decided by the denied a petition to review an administrative decision of the Surface Transportation Board (STB) which held that the Interstate Commerce Commission Termination Act (ICCTA), codified at 49 U.S.C.§ 10501(b), preempts the plaintiffs’ state-tort law claims against the BNSF Railway Company (BNSF).

According to the plaintiffs’ complaint filed in state court, their 550-acre farm was severely damaged by the flooding of their lands resulting from the railroad’s negligent maintenance of an earthen embankment that bisects their property on which BNSF operates a railroad track. The area was prone to flooding which could spill over the tracks, interrupting rail service. To avoid this, the railway raised the embankment but massive floods occurring in 2011 breached the new embankment, and washed away the fertile soil of the plaintiffs’ farm land. The plaintiffs filed their claims in state court, but the court stayed those claims to give the plaintiffs the opportunity to have the Board rule on whether the ICCTA preempts their state law claims.

The STB ruled that the federal law did in fact preempt these claims because they would have the effect of “managing or governing rail transportation,” resulting in an unreasonable burden or interference with rail transportation. A direct appeal was taken to the Eighth Circuit, which affirmed the STB’s decision. The Court of Appeals noted that the basic question it had to decide was whether the STB’s decision was based on a permissible construction of the statute, and whether its factual conclusions were supported by substantial evidence in the administrative record. The Court of Appeals held that the STB’s ruling satisfied these requirements.

11.  Court of Appeals Rejects Attempts to Force EPA to Rescind Delegated Permitting Authority
On November 30, 2015, the U.S. Court of Appeals for the Eleventh Circuit, in Cahaba Riverkeeper, et al., v. EPA, issued a ruling dismissing, without prejudice, an appeal of an EPA interim decision not to begin proceedings under the CWA to withdraw the State of Alabama’s delegation of NPDES permitting authority. Under the CWA, EPA can rescind a delegation of permitting authority in accordance with the procedures set forth in the Act and EPA’s implementing regulations (40 C.F.R. § 123.64(b)(1)). A number of environmental organizations filed a petition with EPA requesting the agency take steps to withdraw that delegation, citing many reasons to do so. EPA considered the petition, but decided that 22 of the cited deficiencies did not warrant such action. The EPA stated that it would work with Alabama to address the remaining complaints.

This appeal followed, and the Court of Appeals held that EPA’s partial findings were not immediately reviewable by the court because EPA had not made a final “determination”, as required by the statute. In addition, allowing an appeal of such an interim report would have the tendency to “disrupt the delicate administrative process envisioned by the Clean Water Act.” Since other complaints have been made to EPA regarding other state delegations, this case may presage how the courts and EPA will handle these matters in the future.

State Courts Decisions

California

On November 30, 2015, the California Supreme Court issued a ruling in Center for Biological Diversity, et al., v. California Department of Fish and Wildlife, et al., which had the effect of blocking the development of a large mixed-used real estate development project in the Los Angeles area. The Court’s decision was based on its evaluation of the project’s environmental impact report calculating the significance of the greenhouse gas emissions that would be discharged by this development, whether the proposed mitigation measures relating to a fully-protected species appeared to constitute a prohibited “taking,” and the failure to comply with certain procedural requirements of the California Environmental Quality Act.

Pennsylvania
On December 29, 2105, the Pennsylvania Supreme Court issued a ruling that may be of considerable interest to oil and gas operators in Pennsylvania. In EQT Production Company v. Department of Environmental Protection of the Commonwealth of Pennsylvania. EPC conducts natural gas hydraulic fracturing operations in Pennsylvania and in May 2012 the Department of Environmental Protection of the Commonwealth of Pennsylvania notified (DEP) that it had discovered leaks in one of its subsurface impoundments that contained contaminated wastewater. It then cleaned the site of impaired water and sludge a began a “formal cleanup process” under Pennsylvania Act 2.

In May 2014, the DEP notified EPC that it was proposing a civil penalty of nearly $1.3 million, an amount which included assessments for ongoing violations of the Clean Streams Act (CSA), and that each day in which the contaminants remain in the subsurface soil and passively enter groundwater constitutes a violation, “implicating serial, aggregating penalties.” EPC argued that its invocation of the Act 2 voluntary cleanup program limited its exposure to the time period in which actual discharges were occurring, which ended in June 2012. EPC then sought relief in the Commonwealth Court to obtain a definitive ruling on the scope of its exposure, that it lacked any viable administrative remedy to have these issues decided promptly. The DEP argued that EPC’s exclusive remedy lay with the Pennsylvania Environmental Hearing Board, and filed a complaint for civil penalties with the Board, now seeking over $4 million in penalties and a $10,000 per day penalty.

EPC’s resort to the Commonwealth Court was unavailing, which agreed that the Board had exclusive authority to determine appropriate penalties under the CSA. EPC then filed an appeal to the Pennsylvania Supreme Court, arguing that the DEP’s continuing-violation interpretation imposes on EPC ongoing, indefinite civil penalty liability based on the mere presence of contaminants in the waters of the Commonwealth and forces EPC to continue to spend significant additionally money well beyond what is required under Act 2 or face massive civil penalties for an indefinite period of time.

The Pennsylvania Supreme Court agreed with EPC that the DEP’s determination that the CSA permitted the use of a continuing violation approach was fit for pre-enforcement review. The court noted that both EPC and the amicus briefs filed on its behalf argued that this case was analogous to the 2012 U.S. Supreme Court ruling in Sackett v. EPA, which held that an EPA administrative compliance order was subject to pre-enforcement review in the federal courts in view of the onerous adverse consequences imposed by the CWA if a prolonged administrative review.