May 01, 2015

Recent developments in “permit shield” law

Thomas Casey and Patrick Runge

The regulated community relies heavily on federal and state permits as a basis for environmental compliance strategies. Because adherence to the conditions and standards set forth in a validly issued permit should protect a facility from compliance-related liabilities, permits provide the certainty and predictability necessary to operate in a highly regulated environment. In January, the Sixth Circuit’s Sierra Club v. ICG Hazard, LLC decision made headlines for affirming that a National Pollutant Discharge Elimination System (NPDES) “general” permit protected its holder from Clean Water Act liability associated with selenium discharges that were not explicitly referenced in the permit. No. 13-5086 (6th Cir. Jan. 27, 2015). However, two other 2014 cases, discussed below, could also have notable impacts on this area of law.

Southern Appalachian Mountain Stewards v. A&G Coal Corp

In Southern Appalachian Mountain Stewards v. A&G Coal Corp., 758 F.3d 560 (2014), the Fourth Circuit set limits on the protections offered by NPDES permits. In the underlying action, environmental groups sued A&G for violating the Clean Water Act by discharging selenium from a bituminous coal mine without explicit authorization in the facility’s NPDES permit.

Permit shield defense

A&G contended that it was shielded from liability for the discharges under the Fourth Circuit’s two-part test because (1) it had disclosed the source of the selenium discharges—bituminous coal mining—to the Virginia Department of Mines, Minerals and Energy during the permit application process and (2) the state permitting agency was “generally aware of elevated selenium levels in the geographic area.” Thus, A&G argued that the possibility of selenium discharges from its operation was “within [the state agency’s] reasonable contemplation” when it issued the permit. The district court disagreed, holding that a permit shield did not apply.

Disclosure requirement

On appeal, the Fourth Circuit affirmed. The appellate court emphasized that the mine’s permit application required A&G to indicate whether selenium was “believed present” or “believed absent.” Silence was not adequate. Because A&G did not indicate its belief, the company had not met its disclosure obligations and could not assume implicit authorization for the discharges.

EPA’s policy memorandum

The Fourth Circuit also refused to apply a 1995 U.S. Environmental Protection Agency (EPA) policy memorandum, which states that a permit shield applies to pollutants not identified as present in an NPDES application but which are “constituents of wastestreams, operations or processes that were clearly identified in writing during the permit application process and contained in the administrative record.” Because the policy was predicated on the permittee’s full compliance with all relevant application and notification requirements, it was inapplicable. The court also highlighted A&G’s inconsistency in asserting that it had no reason to believe that it would discharge selenium, while simultaneously asserting that its disclosures to the state permitting agency put selenium discharges within the agency’s reasonable contemplation.

Sierra Club v. Energy Future Holdings Corp.

A second significant environmental permitting decision from 2014 is Sierra Club v. Energy Future Holdings Corp., No. W-12-CV-108 (W.D. Tex. 2014). A key issue in this case was whether Luminant could rely on two affirmative defenses in its air operating permit and Texas’s State Implementation Plan (SIP) against alleged opacity exceedances due to startup, shutdown, and malfunction-related conditions. In determining the issue, the court held that Luminant could not rely on a permit shield defense because Texas regulations required the shield to be explicitly set forth in the air permit and Luminant’s permit did not include the necessary language.

Nevertheless, the court found that the two affirmative defenses were still applicable because (1) the plaintiffs were barred from collaterally attacking the defense provisions because the defenses were incorporated into the permit, and (2) the court should apply the law that applied at the time of the action, not at the time of the alleged violations. Luminant demonstrated that it fulfilled the requirements of those affirmative defenses and won. The case played out very much like a permit shield case, but the basis for the court’s decision was distinct.

Collateral attack of valid permit

First, the court held that it lacked jurisdiction to hear claims collaterally attacking a valid Title V permit provision. TCEQ issued the plant’s renewed Title V permit in 2008, after a public permitting process. Neither EPA nor the Sierra Club timely objected to the permit’s affirmative defense provisions for exceedances related to upsets and unplanned startups and shutdowns (within the Clean Air Act’s specified 45-day deadline). Therefore, Title V’s “jurisdictional bar” prevented either party from subsequently challenging those provisions.

Current law and retroactive effect

Second, the district court held the two affirmative defense provisions were applicable because they conformed to affirmative defenses that were currently available under Texas’s SIP. While the state had issued the permit to Luminant in 2008 with the affirmative defense provisions, EPA did not approve the revision of the Texas SIP that incorporated those defenses until January 10, 2011. Despite this apparent “gap” in coverage, the court ultimately held that the current law, not the law in effect at the time of the alleged violations, was the appropriate standard unless there was an impermissible retroactive effect on the plaintiff (the Sierra Club). The court concluded that applying the current law did not impair any vested rights acquired by the Sierra Club before EPA approved the affirmative defenses as part of the Texas SIP.

At trial, the district court held that the affirmative defenses applied to each opacity event at issue, giving deference to previous TCEQ determinations to that effect. Thus, compliance with the permit’s affirmative defense provisions for upsets and startups/shutdowns protected Luminant from liability, even though a permit shield did not.

Advice for permit holders

Together, these recent cases suggest that while courts still recognize the important role environmental permits play in providing reliable guidance and standards for facilities in highly regulated industries, permit holders should be increasingly hesitant to rely on implicit or unstated “authorizations” in a permit unless sufficient disclosures were made in the application.

Thomas Casey and Patrick Runge


Thomas Casey and Patrick Runge both practice in Balch & Bingham’s environmental law section in Birmingham, Alabama, representing industrial and commercial clients in a full array of environmental compliance and litigation matters. Balch & Bingham represented the defendants in the Sierra Club v. Energy Future Holdings Corp. case discussed below.