On August 12th, the 8th Circuit Court of Appeals issued a decision (Sierra Club v Otter Tail Power Company, et al., 09-2842) that curtails citizen suit enforcement actions brought under the Clean Air Act (CAA). The Sierra Club brought this citizen suit against Otter Tail Power Company and other entities that own and operate the Big Stone Generating Station in South Dakota, seeking assessment of civil penalties against, and equitable damages from, the owners and operators of Big Stone for failing to obtain CAA “Prevention of Significant Deterioration” (PSD) permits before commencing three modifications at the power plant. The PSD permitting program – intended to ensure that air quality in areas that have attained certain air quality standards is not degraded – is an essential part of the CAA regulatory scheme, and works hand in hand with the New Source Performance Standards (NSPS) program, which requires EPA to establish technology-based performance standards designed to limit emissions from major new sources of pollution.

During the 1990s, Big Stone did not apply for permits before changing the primary fuel used at the plant or before modifying the boiler to increase the surface area of its primary superheater. While Big Stone did apply for a permit in 2001 before undergoing physical and operational modifications to the plant to supply steam to a nearby ethanol plant, the South Dakota Department of Environment and Natural Resources (DENR) concluded that the project did not trigger federal NSPS or PSD requirements. The Sierra Club argued that Otter Tail violated the CAA by failing to obtain PSD permits before commencing each of these three modifications, and that this violation was a continuing one, such that Otter Tail violated the CAA each day it operated without PSD permits.

The District Court granted Otter Tail’s motion to dismiss Sierra Club’s lawsuit, finding that Sierra Club’s civil penalty and equitable claims were time-barred. On appeal, the Eighth Circuit addressed three issues: (1) whether failure to obtain a PSD or New Source Review (NSR) permit is a one-time or an on-going violation of the Clean Air Act; (2) whether, when the statute of limitations has been exceeded for civil penalties, equitable relief also is precluded; and (3) whether citizen suits can allege violation of NSPS requirements where they have not been enumerated on a facility’s CAA Title V permit.

First, the court resolved a split between the Sixth and Eleventh Circuits and concluded that failure to obtain a PSD or NSR permit is a one-time violation tied to construction, not an on-going operating violation for failure to meet requirements that would have been imposed had the allegedly required permits been obtained. The court relied upon the plain language of the statute and regulations applicable to Otter Tail, which only prohibit modification of the plant without a PSD permit or application of Best Available Control Technology (BACT), not its operation.

Second, the court held that where the statute of limitations has been exceeded for civil penalties, equitable relief also is precluded.

Third, the court determined that CAA citizen suits cannot allege violation of NSPS requirements where those requirements have not been enumerated on the CAA Title V permit. Rather, the failure to include applicable requirements must be raised during the administrative process of developing the Title V permit and – if a citizens group is unhappy with the permit – challenged at the time that the permit is issued. In so deciding, the court relied heavily on a recent Ninth Circuit decision: Romoland Sch. Dist. v. Inland Empire Energy Ctr., LLC, 548 F3d 738 (9th Cir. 2008). Notably, the court held firm on this point even though EPA had not commented on the plant’s proposed Title V permit. Moreover, here, DENR determined that NSPS did not apply to the 2001 modifications at the plant, but the Title V permit did not explicitly incorporate that determination. Sierra Club argued that this decision circumvents the CAA’s limitations on the use of the Title V permit shield, which requires that the shield be clearly stated on the face of the permit. The court, however, found that principles of judicial jurisdiction trump plain statutory language, and refused to expand its jurisdiction to honor a broad reading of the CAA Title V permit shield.

Accordingly, the court affirmed the district court’s dismissal of Sierra Club’s claims.

The Otter Tail decision is notable in several regards. First, citizen groups and EPA often obtain sizeable settlements or civil penalty judgments in enforcement actions, based on the theory that a company that failed to obtain the necessary permit violated the law every day of subsequent operations. Under the Otter Tail decision, such citizen suit claims and judgments largely will be precluded as time-barred. Second, the court’s holding regarding equitable remedies arguably means that citizens groups cannot seek a court order requiring a company to cease operations or go get the “missing” pre-construction permit years later.

Please see http://www.ca8.uscourts.gov/opndir/10/08/092862P.pdf to access the court’s complete opinion.