November 14, 2018

PSD Preconstruction Permits: Fifth Circuit Bars Government’s Civil Penalty Claims as Untimely But Remands to the District Court to Consider Whether Equitable Relief May be Available to the Government

John L. Watson

Luminant Generation Company and Big Brown Power Company (“Utilities”) constructed power plants in Texas before the passage of the 1977 amendments to the federal Clean Air Act (CAA). Their power plants are considered “major sources” of air pollution and thus, in the normal course, the Utilities would be required to obtain preconstruction permits for modifications to the facilities as required by the prevention of significant deterioration (PSD) provisions of the CAA. Having failed to obtain the permits, the United States sued, seeking civil penalties and injunctive relief. The district court dismissed the government’s civil penalty and injunctive relief claims based on the passage of the general federal five-year limitations period imposed under 28 U.S.C. § 2462 and also dismissed injunctive relief claims for lack of jurisdiction.

In United States v. Luminant Generation Company, No. 17-10235 (5th Cir. Oct. 1, 2018), the Fifth Circuit Court of Appeals, addressing the Utilities’ motion to dismiss, upheld the district court’s determination that the civil penalty claims—the legal claims—were time-barred. The court joined several other circuits (Third, Seventh, Eighth, Tenth, and Eleventh) in holding that claims to recover civil penalties for violation of the PSD requirements pursuant to 42 U.S.C § 7475(a) must be brought within five years of the first day of the alleged construction period.

However, the court remanded the case to the trial court to determine if the government could properly seek equitable relief.

Preconstruction Requirements

A major source of air pollution is required to obtain a preconstruction permit under the CAA for certain types of modifications to its facilities. The PSD program, which was authorized in the 1977 amendments to the statute (42 U.S.C § 7475(a)), imposes two significant preconstruction requirements on these sources of air pollution.

First, no major emitting facility on which construction is commenced after August 7, 1977, or for which “major modifications” are built after that date, may proceed with construction unless a permit has been issued for the facility that includes emission limitations; and second, the proposed facility must implement the best available control technology (BACT) for each pollutant subject to regulation. The Texas state implementation plan (SIP), which was approved by the Environmental Protection Agency and which gives authority to the state to implement the PSD program, requires permits for both new construction and major modifications. 30 Tex. Admin. Code § 116.110.

The government alleged that the Utilities undertook unlawful “major modifications” resulting in the release of significant amounts of SO2 and NOx pollution without first obtaining the required preconstruction permits.

The Central Issue—What Event(s) Trigger the Running of the Limitations Period?

The parties agreed on the dates when the construction on the modifications began, i.e., variously, for the power units involved, between February 26, 2005, and March 1, 2009. Where the parties differed was when the limitations clock started ticking, and actually whether, as the government argued, the clock began ticking anew each day when the power units were operated without the Utilities holding the required permits.

The Utilities took the position that, where a facility is modified without a permit, the violation of the statute is a “one-time” event. In other words, the five-year clock begins to run on the date construction of the modification begins. Thus, all of the governments’ “legal” claims for civil fines, penalties, or forfeitures would be time-barred.

The government argued that a facility so modified without having obtained preconstruction permits “continuously” violates the statute, i.e., a new violation occurs every day that the facility operates after construction; a new five-year clock starts ticking each day the power unit operates without the requisite permit.

Citing opinions from five other circuit courts of appeal, and what the court termed the “plain meaning” of § 7475(a) of the CAA, Judge E. Grady Jolly held that a statutory violation occurs only at some point during the construction period; not to the subsequent operation of the modified facility.

The court distinguished its earlier opinion in United States v. Marine Shale Processors, 81 F.3d 1329 (5th Cir. 1996), stating,

Marine Shale does not, however, control our decision today. As Marine Shale explained, “The CAA statutory scheme contemplates at least two different types of air permits unhappily named ‘preconstruction permits’ and ‘operating permits,’ and [t]he distinction between [them] is critical. . . . Marine Shale addressed a violation concerning a facility’s operation without a permit.”  In contrast, today, however, we are solely addressing the preconstruction permit mandated by § 7475(a).

Emphasizing that Marine Shale failed to obtain a permit for operating minor-source emissions and that section 7475(a) applies only to major-emitting facilities, the court stated:

These distinctions between Marine Shale and our case illustrate the complexity of environmental statutes and regulations, as well as the importance in not confusing the myriad permits, pollutants, and prohibitions that are implicated in regulating the environment.

Addressing the Texas SIP requirement that facilities must apply BACT to their operations, the court held that such BACT requirements are preconditions for granting a preconstruction permit. Interestingly, the court concludes that the “Texas SIP . . . instructs facilities what they must do to get a permit, not what obligations are imposed on the continuing operations of the facility.” [Emphasis added.]

The court held that each construction period commenced more than five years before the government filed suit; thus, the claims for civil fines, penalties, and forfeitures were time-barred.

Injunctive Relief in the Face of the Concurrent-Remedies Doctrine

The government also asked for injunctive relief. On this issue, the court was not as accommodating to the trial court. The district court had dismissed the government’s request for injunction opining that (1) these equitable claims were also time-barred, and (2) “Congress did not provide for injunctive relief for past violations in the [CAA].”

Having concluded that section 2462 “clearly bars the legal claims here,” the court addressed whether the equitable claims were also barred. The court recognized that the US Supreme Court was “unequivocal” in stating that equitable relief is prohibited when a concurrent legal remedy is barred. However, Judge Jolly then added, “But the Supreme Court has not had occasion to apply that doctrine to an action brought by the government in its sovereign capacity.”

The court emphasized that reconciling the Supreme Court’s two rules was “somewhat problematic.” Nevertheless, the court embraced the Tenth and Eleventh Circuits’ decisions, which exempted actions brought by the government in its sovereign capacity from the application of the “concurrent-remedies doctrine” and held that the district court had erred in dismissing the injunctive relief claims under Rule 12(b)(6) based on the doctrine.

Finally, the court made short work of the trial court’s dismissal of the government’s equitable claims on jurisdictional grounds under Rule 12(b)(1). Following a quick summary of the statute and related court opinions, it concluded, “[W]e find no support for the district court’s holding that its ‘jurisdiction’ does not ‘extend to injunctive relief’ based on past violations of the CAA.”

Judge Elrod’s Dissent—Distain for the “Sovereign Actor Exception”

Judge Elrod wrote an eloquent dissent first agreeing that the legal claims were time-barred, but then taking exception with the majority’s “sovereign actor exception” to the judicially created “concurrent-remedies doctrine.”

By siding with the Tenth and Eleventh Circuits in creating such an exception, the majority opinion throws itself behind a holding that is, at the very least, questionable. I would not be so hasty. At this juncture, I see little wisdom in rushing headlong to judicially create yet another doctrinal exception that will generate a possibility of never-ending liability in tension with statutory language.

John L. Watson

Published: November 14, 2018


Case summary prepared by John L. Watson, who practices in Denver with Spencer Fane LLP. A trial lawyer for over 40 years, he represents clients in the fields of complex commercial litigation, environmental, natural resources, mining, oil and gas law, and toxic tort litigation, real estate development, and special district litigation. Mr. Watson has served for over15 years (2002–present) as trial tactics faculty at the National Institute for Trial Advocacy (NITA), which is recognized as the nation’s leading provider of legal advocacy skills training. Mr. Watson taught environmental law as adjunct faculty at the University of Denver College of Law for five years, served twice as chair of the Colorado Bar Association’s Environmental Law Section (1979 and 2003), and serves currently as a member of the Environmental Law Section’s Advisory Council. He is currently a vice chair of the ABA SEER Environmental and Natural Resources Litigation Committee and the Air Quality Committee.