July 01, 2014

IN BRIEF

Theodore L. Garrett

Constitutional law

The Pennsylvania Supreme Court held invalid certain portions of a statute amending the Pennsylvania Oil and Gas Act. Those provisions effectively curbed local regulation with respect to the exploration and recovery of natural gas in a geological formation known as the Marcellus Shale, including hydraulic fracking. Robinson Township v. Commonwealth, 83 A.3d 901 (Pa. 2013). The plurality ruled that provisions of the statute violate the Commonwealth’s duties as trustee of Pennsylvania’s public natural resources under the Environmental Rights Amendment, a provision of the Commonwealth’s constitution stating that Pennsylvania’s public natural resources are the common property of all the people, by removing local authorities’ ability to carry out their constitutional duties.

Securities fraud

A court of appeals held that BP stockholders may bring a class action suit seeking investment losses when a spill and temporary shutdown of the Prudhoe Bay oil field in Alaska caused a 4 percent decline in BP’s share price. Reese v. Malone, 747 F.3d 557 (9th Cir. 2014). Reversing the district court’s dismissal of the lawsuit under the Securities and Exchange Act and Rule 10b-5, the Ninth Circuit held that plaintiff shareholders adequately alleged that BP knowingly, or with deliberate recklessness, made false and misleading public statements about the condition of Alaskan pipelines and the company’s pipeline maintenance and leak detection practices prior to and in the wake of an oil spill.

CERCLA

The Second Circuit upheld a trial court’s dismissal a developer’s 9/11 cleanup cost claims against owners of the World Trade Center and other companies. Cedar & Washington Assocs. LLC v. The Port Auth. of New York and New Jersey, No. 10-4197, 2014 WL 1717232 (2d Cir. May 2, 2014). The court ruled that the September 11 attacks were acts of war for purposes of the Comprehensive Environmental Response, Compensation, and Liability Act (CERCLA) affirmative defense and thus “obviated any precautions or prudent measures defendants might have taken to prevent contamination.” The defendants therefore were entitled to judgment on the pleadings.

The D.C. Circuit upheld a district court ruling dismissing a suit against the United States under the Resource Conservation and Recovery Act (RCRA) citizen suit provisions to require the U.S. Environmental Protection Agency (EPA) to comply with certain RCRA regulations at an abandoned uranium mine. El Paso Natural Gas Co. v. U.S., Nos. 12-5156 and 12-5157, 2014 WL 1328164 (D.C. Cir. Apr. 4, 2014). The district court dismissed due to an administrative settlement between the Bureau of Indian Affairs (BIA) and EPA that they formalized three years after the start of litigation. The D.C. Circuit held that Section 113(f) of CERCLA bars a lawsuit until the remedy is completed. However, the court expressed concern if “EPA can also do nothing for as long as it pleases, then CERCLA 113(h) becomes a license for EPA to do as it will for as long as it would like, all the while free of judicial review. And where federal facilities are involved, this carte blanche has the potential to be used by the Government to avoid liability.”

Air quality

The U.S. Supreme Court upheld EPA’s Cross-State Air Pollution Rule (CSAPR, Transport Rule), which regulates nitrogen oxide and sulfur dioxide emissions in 27 upwind states to achieve downwind attainment. EPA v. EME Homer City Generation, L.P., 134 S. Ct. 1584 (2014). The majority held that disapproval of a state plan, without more, triggers EPA’s obligation to issue a Federal Implementation Plan (FIP), and stated that “the CAA does not command that States be given a second opportunity to file a SIP [state implementation plan] after EPA has quantified the State’s interstate pollution obligations.” The court’s opinion rejects the argument that EPA must disregard costs and consider exclusively each upwind state’s proportionate responsibility for downwind air quality problems, concluding that using costs in the Transport Rule is an efficient and equitable solution to the allocation problem and nothing in the statute precludes EPA’s consideration of costs.

The D.C. Circuit largely upheld EPA’s 2013 maximum available control technology (MACT) standards regulating emissions from Portland cement plants, but struck a portion of the rule providing an “affirmative defense” for noncompliant emissions due to equipment malfunctions. Natural Res. Def. Council v. EPA , Nos. 10-1371, 10-1378 and 13-1112, 2014 WL 1499825 (D.C. Cir. Apr. 18, 2014). The court stated that “deciding whether penalties are ‘appropriate’ in a given private civil suit is a job for the courts, not for EPA.” EPA had argued that the affirmative defense is vital to address the “practical reality” that control technology can fail unavoidably, and the opinion states that defendants may still be able to raise such defenses in future citizens suits for alleged violations of emissions limits.

The D.C. Circuit upheld EPA’s MACT air toxics rule for coal- and oil-fired electric generating units. White Stallion Energy Ctr. v. EPA, No. 12-1100, 2014 WL 1420294 (D.C. Cir. Apr. 15, 2014). The split decision ruled that EPA reasonably concluded that it was not required to consider costs in determining whether electric utilities should be subject to MACT standards. The court rejected arguments that the mercury limits were too stringent, that utilities should not have been allowed to comply using emissions averaging, and that EPA should have distinguished between larger major source units and smaller area sources.

The D.C. Circuit also upheld EPA’s New Source Performance Standards (NSPS) for fossil-fuel-fired steam generating units. Util. Air Regulatory Group (UARG) v. EPA, 744 F.3d 741 (2014). The court rejected the argument that plants with continuous emissions monitoring systems need not periodically measure opacity, stating that EPA reasonably explained that opacity monitoring would provide a check to make sure that pollution controls were working. The court also upheld EPA’s position that it would decline to approve state-specific affirmative defense provisions for the steam generating NSPS rules because these are federal standards not incorporated into state plans as state regulations.

A district court rejected claims that a power plant violated limits on particulate matter as measured by opacity. Sierra Club v. Energy Future Holdings Corp., No. 6:12-108 (W.D. Tex. Mar. 28, 2014). The court found that the opacity incidents were covered by an affirmative defense in the Texas SIP for unpreventable malfunctions and necessary startup and shutdown events, the affirmative defense was approved by EPA, shutdowns are unavoidable, and the plant took reasonable measures to minimize emissions during such periods. The opinion also notes that the events did not cause exceedances of national ambient air quality standards.

Water quality

A court of appeals upheld the U.S. Army Corps’ decision to issue a § 404 permit that authorizes Leeco, a mining company, to “mine through” and fill certain Kentucky surface stream beds, which are already in a degraded state, and requires Leeco to offset the limited environmental effect of the filling by improving other streams in the watershed. Kentuckians for the Commonwealth v. U.S. Army Corps of Eng’rs, 746 F.3d 698 (6th Cir. 2014). Plaintiffs alleged that the Corps did not address the human health effects of coal production. The court held that the Corps did not violate the National Environmental Policy Act (NEPA) in limiting the scope of its environmental analysis only to effects closely related to the dredge-and-fill activities and the discharge of dredged or fill material into jurisdictional waters. The court also found that the Corps’ acceptance of Leeco’s compensatory mitigation plan was not arbitrary and capricious.

A district court vacated EPA’s Water Transfer Rule, which excludes from the National Pollutant Discharge Elimination System (NPDES) program “[d]ischarges from a water transfer.” Catskill Mountains Chapter of Trout Unlimited v. EPA, No. 08-CV-5606 (KMK), 2014 WL 1284544 (Mar. 28, 2014). EPA failed to provide a reasoned explanation for the rule, and in particular the term “navigable waters” as interpreted in the Rapanos decision. Even when the waters being transferred meet state water quality criteria, the opinion states, the transfers risk introducing foreign species into non-native areas, as well as disturbing the natural sediment, nutrient, and other levels in recipient waterbodies.

Federal lands

Abandoned railroad rights of way belong in certain instances not to the government, but to the private parties that owned the underlying lands, the U.S. Supreme Court held. The Marvin M. Brandt Revocable Trust v. U.S., 134 S. Ct. 1257 (2014). The Court rejected the government’s claim that it owned the abandoned right of way, concluding that an 1875 railroad right-of-way act was inconsistent with the grant of a fee interest to the railroads. Under common law property principles, an easement disappears when abandoned by its beneficiary, leaving the property owner to resume an unencumbered interest in the land.

Energy

A settlement agreement for processing claims for business losses resulting from the 2010 Deepwater Horizon incident did not require claimants to provide evidence of causation, the Fifth Circuit held. Lake Eugenie Land & Dev., Inc. v. BP Exploration and Prod., 744 F.3d 370 (5th Cir. 2014). In a divided ruling, the majority rejected BP’s argument that the Claims Administrator should perform a gatekeeping function, stating that any concerns about dubious claims may be resolved in processing the individual claims. The settlement agreement contained many compromises. The court wrote: “There is nothing fundamentally unreasonable about what BP accepted but now wishes it had not.”

Toxic torts

A federal district court ruled that a $9.5 billion judgment against Chevron Corporation in Ecuador was fatally tainted by fraud. Chevron Corp. v. Donziger, 974 F. Supp. 2d 362 (S.D.N.Y. 2014). Judge Kaplan concluded that the plaintiffs’ attorneys “wrote the Lago Agrio court’s Judgment themselves and promised $500,000 to the Ecuadorian [judge] to rule in their favor and sign their judgment.” The court’s order enjoins enforcement of the judgment by these defendants in the United States and requires the attorneys to pay and assign to Chevron all fees and other payments, property, and other benefits that they have received or hereafter receive as a consequence of the Ecuadorian judgment.

Theodore L. Garrett

Theodore L. Garrett is a partner of the law firm Covington & Burling LLP in Washington, D.C. He is a past chair of the Section and is a contributing editor of Trends.