November 09, 2018

In Brief

John R. Jacus

Breach of contract

Shell Oil Co. v. U.S., No. 17-1695 (Fed. Cir. July 18, 2018). 
The U.S. Court of Appeals for the Federal Circuit affirmed an award of damages by the U.S. Court of Claims to a group of oil companies for a breach of contract by the United States with respect to their World War II-era production of aviation gasoline or “avgas” fuel for the war effort. The Federal Circuit had previously ruled that the United States did breach its contract with the appellant oil companies, which had agreed to work around the clock to provide the fuel for U.S. armed forces aircraft. The claims at issue were based on contracts entered in 1942 and 1943 for the production of avgas, which resulted in large volumes of acid sludge waste being generated at the appellants’ refinery sites. The United States argued that the Court of Claims had wrongly awarded damages, but the Federal Circuit disagreed, finding that appellants had proffered unrebutted evidence showing damages incurred by them as a result of the breach. The appellate court also held that the amount of acid sludge and other wastes attributed to the contracts in question was properly determined by the court below.

 

CERCLA

Asarco, LLC v. Union Pacific R.R. Co., No. 2:12-cv-00283, 2018 WL 3599967 (D. Idaho July 26, 2018).
The U.S. District Court for the District of Idaho held that plaintiff Asarco, LLC, had previously released its right to seek contribution with respect to the Bunker Hill Superfund Site in connection with Asarco’s prior bankruptcy settlement with defendant Union Pacific Railroad Co. The court held in the alternative that even if Asarco hadn’t released its right to contribution, it had failed to prove it paid more than its proportionate share of liability and, therefore, could not assert a right to contribution from Union Pacific. Asarco had filed for bankruptcy in 2005 in the Southern District of Texas. Asarco first settled with the United States for $483 million in response costs and natural resource damages. The bankruptcy court also approved a settlement between Asarco and Union Pacific resolving proofs of claim and past response costs, and reserving claims for future costs by Union Pacific. As part of that bankruptcy settlement, the parties also agreed to release claims against one another. The instant case was subsequently filed by Asarco in 2012 seeking contribution under section 113(f) of the Comprehensive Environmental Response, Compensation, and Liability Act (CERCLA). Asarco contended it had paid substantially more than its allocated share from the settlement with the United States. Asarco also maintained that the release of claims it gave to Union Pacific in their bankruptcy settlement only applied to proofs of claim, but the court did not agree. The court took note of the lack of factual support for Asarco’s claim that it had overpaid and its attempted inclusion of late payment interest in the payment amount claimed by Asarco.

Exxon Mobil Corp. v. United States, Nos. H-10-2386 & H-11-1814, 2018 WL 3956907 (S.D. Tex. Aug. 17, 2018). 
Exxon Mobil Corp. (Exxon) brought suit in two separate actions against the United States under CERCLA section 113(f) in contribution, after incurring costs for the cleanup of contamination at two of its refinery sites, located in Baytown, Texas, and Baton Rouge, Louisiana. After finding both parties liable under CERCLA in a prior opinion, the U.S. States District Court for the Southern District of Texas focused in this phase of the trial on the recoverability of costs claimed and certain aspects of the allocation of costs between the parties. These contribution claims were based upon the United States having contracted with predecessors of Exxon at the two refinery sites for the production of fuels and other petroleum products needed by the military. The United States challenged whether costs incurred by Exxon in connection with a Resource Conservation and Recovery Act (RCRA) Facilities Investigation of one of the refineries’ RCRA activities constituted necessary costs of response under CERCLA. Exxon argued that such RCRA-related costs were necessary and resulted in a more cost-effective and efficient cleanup. The court agreed with Exxon, finding that at least some of the RCRA-related costs were recoverable, while deferring the identification of those cleanup costs attributable to wartime-related production to a subsequent phase of trial. The United States also challenged whether the actions taken by Exxon at the two sites were remedial actions subject to a three-year statute of limitations or removal actions that were still ongoing and not subject to a limitations period, as was argued by Exxon. The court again agreed with Exxon, since it had not yet achieved any comprehensive or permanent remedy at the sites on a facility-wide basis and no record of decision had been issued for either site. Finally, on the issue of allocation, the United States advocated for a temporal allocation of wartime-related control by the government, but the court held that production-based allocation would be more equitable, since it reflected the variation between wartime production and non-wartime production and was supported by other CERCLA allocation decisions.

Clean Water Act

Los Angeles Waterkeeper v. Pruitt, 320 F. Supp. 3d 1115 (C.D. Cal. Aug. 9, 2018).
 
Plaintiff environmental nongovernmental organizations (NGOs) filed suit in the U.S. District Court for the Central District of California over the U.S. Environmental Protection Agency’s (EPA’s) denial of their petitions seeking to require the issuance of Clean Water Act section 402 permits for various industrial sources of stormwater discharges that were contributing to violations of state water quality standards in the Dominguez and Los Cerritos Channels. EPA had previously determined that stormwater pollution entering both channels contributed to violations of California’s state water quality standards but declined to require National Pollutant Discharge Elimination System (NPDES) permits to regulate the facilities that discharge to stormwater entering the channels. The NGOs petitioned EPA to require NPDES permits for industrial and commercial dischargers to both streams, but in October 2016 the agency denied plaintiffs’ petitions primarily on the ground that other federal, state, or local programs were sufficient to address the issue. The district court agreed with the NGOs, noting that the Clean Water Act expressly requires EPA to regulate stormwater discharges through the issuance of section 402 permits if the discharges are contributing to violations of state water quality standards. Additionally, the court agreed that reliance on other federal, state, or local programs to regulate such discharges was improper because it was contrary to the specific language of the statute. Because EPA’s decision was based in part on this improper factor, the court held that its decision not to regulate was arbitrary and capricious. The court granted plaintiffs’ motion for summary judgment and ordered EPA to require permits for the stormwater dischargers at issue or to enforce the Clean Water Act to prevent such discharges from continuing.

South Carolina Coastal Conservation League v. Pruitt, 318 F. Supp. 3d 959 (D.S.C. Aug. 16, 2018). 
Plaintiff environmental NGOs brought suit against EPA and the U.S. Army Corps of Engineers alleging that a rule suspending the effectiveness of the 2015 Clean Water Rule (WOTUS Rule) violated the Administrative Procedure Act (APA). On February 6, 2018, EPA published a rule suspending the effect of the WOTUS Rule until 2020 (the “Suspension Rule”) in the Federal Register. The plaintiffs filed this action on the same day the Suspension Rule went into effect, alleging a violation of the APA due to inadequate public notice and comment, a failure to consider the substantive implications of suspending the WOTUS Rule until 2020, and the failure to restore the prior rule concerning jurisdictional waters of the United States during the suspension period. Concerning the Suspension Rule’s narrow opportunity for comment, the district court noted that when an agency refuses to consider comments on a rule’s substance and merits in issuing a suspension rule the content restriction is “so severe in scope” that “by preventing any discussion of the ‘substance or merits’ of either set of regulations” the opportunity for comment “cannot be said to have been a ‘a meaningful opportunity,’” citing North Carolina Growers’ Ass’n, Inc. v. United Farm Workers, 702 F.3d 755 (4th Cir. 2012). The defendant agencies tried to distinguish other unsuccessful attempts to suspend all or parts of previously enacted regulations by the current administration on the ground that some narrow rulemaking and attendant notice and comment had been afforded, but the court was not persuaded, stating that “[a]n illusory opportunity to comment is no opportunity at all.” Thus, the court found the agencies were arbitrary and capricious in promulgating the Suspension Rule. Concerning the scope of injunctive relief, defendant agencies argued that the court should not issue a nationwide injunction, but the court could identify no principled reason why the Suspension Rule should be enjoined in some states but not others, and enjoined the Suspension rule nationwide.

Climate change and GHG litigation

City of New York v. BP P.L.C., No. 18 Civ. 182, 2018 WL 3475470 (S.D.N.Y. July 19, 2018).
 
Plaintiff New York City (City) sued defendant multinational oil companies for damages from rising sea levels allegedly caused by greenhouse gases emitted through use of fossil fuels produced and marketed by defendants. The City alleged tort claims of public nuisance, private nuisance, and trespass, and sought compensatory damages for past and future costs to protect infrastructure and the public from the impacts of climate change within the City. The defendants moved to dismiss the claims as arising under federal common law and therefore being displaced by the federal Clean Air Act, among other grounds. The court first found that the City’s claims are governed by federal common law, since the international nature of the controversy makes it inappropriate for state law to control, and the City’s allegations of global dispersion of greenhouse gases (GHGs) from use of defendants’ fossil fuels are exactly the type of “transboundary pollution suit” to which federal common law should apply, citing Native Village of Kivalina v. ExxonMobil Corp., 696 F.3d 849, 855–58 (9th Cir. 2012) (Kivalina). The court then turned to whether the federal Clean Air Act displaces the City’s federal common law tort claims, as was held in Kivalina and American Electric Power Co. v. Connecticut, 564 U.S. 410, 131 S. Ct. 2527 (2011) (AEP). Because Congress has expressly delegated to EPA the determination as to what constitutes a reasonable amount of GHG emissions under the Clean Air Act, that statute displaces the City’s claims seeking damages for past and future domestic GHG emissions brought under federal common law. The City argued that because the Clean Air Act “does not regulate the production and sale of fossil fuels,” its claims are not displaced; however, the court disagreed, noting that the City alleged damages from the use of fossil fuels, not from their production and sale. The court also held that state law tort claims were not available to the City given the interstate nature of its claims. Finally, the court considered the City’s claims for damages arising from nondomestic emissions of GHGs from the use of defendants’ fossil fuels, since the Clean Air Act displacement of the City’s claims would be limited to the statute’s domestic scope of regulatory authority. Such nondomestic-emissions-based claims, though not displaced by the Clean Air Act, were nonetheless barred by the presumption against extraterritoriality and the need for judicial caution regarding serious foreign policy consequences. Accordingly, the motion to dismiss was granted and the City’s amended complaint was dismissed with prejudice in its entirety.

American Fuel & Petrochemical Mfrs. v. O’Keeffe, 903 F.3d 903 (9th Cir. Sept. 7, 2018). 
In a split decision, the U.S. Court of Appeals for the Ninth Circuit rejected a challenge to Oregon’s low-carbon fuel standards by energy industry trade associations alleging the Oregon Clean Fuels Program unconstitutionally discriminated against out-of-state fuels. The industry trade associations had argued the program violates the Commerce Clause of the U.S. Constitution by unfairly favoring in-state fuel sources under the guise of providing an economic advantage to fuels that emit less CO2-equivalent greenhouse gases. The appellant trade associations had appealed the dismissal of their original suit filed in the U.S. District Court for the District of Oregon, which held the program was neither discriminatory nor violative of federal law. The majority opinion found that even though the program labeled fuels by state of origin, that did not make the program impermissibly discriminatory, since the economic incentives provided are not tied to state of origin. Appellants also argued that the program violated the Commerce Clause by attempting to control commerce in fuels occurring wholly outside Oregon’s borders, but the court disagreed, noting that this issue had been raised unsuccessfully with respect to California’s similar program, which the court had found to be legal. The dissenting opinion raised concerns about the possibly discriminatory effect of the program’s credit-generating scheme, whereby in-state fuel producers can avoid buying credits, which disfavors out-of-state producers.

RCRA

Util. Solid Waste Activities Group v. Envtl. Prot. Agency, 901 F.3d 414 (D.C. Cir. Aug. 21, 2018). 
Environmental NGOs and industry associations brought separate suits challenging certain provisions of EPA’s 2015 Final Rule regulating the disposal of coal combustion residuals such as fly ash and bottom ash produced by coal-fired power plants. The Final Rule was promulgated under RCRA to establish criteria designed to ensure that human health and the environment are protected from coal residuals being released from impoundments being used by the industry. On cross motions for summary judgment, the court of appeals first turned to the issue of unlined impoundments, which the Final Rule did not require be closed. The court found such a failure to regulate so-called legacy ponds to be arbitrary and capricious given EPA’s own data in the record showing they are prone to leaking. The Final Rule’s approach of relying on leak detection followed by closure was held to be arbitrary and contrary to RCRA, as that approach does not address the identified health and environmental harms documented in the record. The court also held that EPA acted arbitrarily and capriciously and contrary to RCRA in classifying so-called “clay-lined” impoundments as lined, providing that EPA did not explain how the Rule’s contemplated detection and response could assure “no reasonable probability of adverse effects to health or the environment,” and characterizing clay liners as nothing more than compacted soil. With respect to the Final Rule’s exemption of inactive impoundments from regulation, the court ruled in favor of environmental petitioners, finding that EPA failed to articulate a rational explanation for their dissimilar treatment and, therefore, rejected the legacy pond exemption as arbitrary and capricious. The court summarily rejected industry petitioners’ contentions that inactive ponds were not subject to regulation under RCRA and characterized them as open dumps prohibited under the Act. Finally, the court found the Final Rule’s alternative closure procedure to not be arbitrary and capricious, as asserted by industry petitioners, since RCRA did not qualify the prohibition on open dumps by requiring the consideration of costs to comply. The court vacated and remanded the inactive impoundment, unlined impoundment, and clay-lined impoundment provisions for further rulemaking.

Standing: State wetlands mitigation

Bluefield Ranch Mitigation Bank Trust v. S. Fla. Water Mgmt. Dist, No. 4D16-3023 (Fla. Dist. Ct. App.–4th Dist. July 11, 2018).
 
Appellant Bluefield Ranch Mitigation Bank Trust (Bluefield) had petitioned the South Florida Water Management District (SFWMD) for a hearing on the issue of whether the Florida Department of Transportation (FDOT) had properly satisfied applicable statutory criteria for mitigation of wetlands impacts associated with the widening of the Beeline Highway near Lake Okeechobee. FDOT had purchased a certain number of mitigation credits for the project from Bluefield, located in the same watershed area, and had also purchased a number of credits from the Dupuis Management Area (Dupuis), not located in the area. SFWMD dismissed Bluefield’s petition for lack of standing, holding that Bluefield’s interests were purely economic and, therefore, insufficient for standing to challenge the purchase of credits from Dupuis. On appeal to the Fourth District Court of Appeal, the court reversed the SFWMD’s dismissal of Bluefield, finding that the harm to wetlands alleged in Bluefield’s petition met the injury-in-fact requirement for standing and that Bluefield has a substantial interest in ensuring FDOT’s compliance with mitigation requirements that is not purely economic. The court went on to observe that if any entity could challenge FDOT’s allegedly unlawful mitigation, it would be a permitted mitigation bank in the watershed, such as Bluefield. The case was remanded to SFWMD for a hearing on the merits.

John R. Jacus

John R. Jacus is a partner and the Environmental Practice Group Leader in the law firm of Davis Graham & Stubbs LLP in Denver. He is a past Section Council member and Environmental Committees chair and vice-chair and a contributing editor of Trends.