Energy and Natural Resources Litigation Committee Report

I. West Virginia v. EPA

The Supreme Court of the United States in West Virginia v. EPA considered the question of whether the EPA’s restructuring of the Nation’s mix of electricity generation under the Clean Power Plan (CPP), in order to achieve a 38% to 27% reduction of coal use by 2030, was within the meaning of Section 111(d) of the Clean Air Act (CAA). In 2015, the EPA promulgated the CPP, which cited to Section 111 for authority addressing carbon dioxide emissions from existing coal and natural gas fired power plants. Section 111, among other things, authorizes the EPA to regulate certain pollutants from existing sources that are not already regulated by other authorities under the CAA. The Agency derives emission limits by determining the “best system of emission reduction” (BSER) for respective existing sources. The CPP created three types of BSER measures for existing coal and natural gas plants. The first measure involved cleaner practices for existing sources, while the second and third measures essentially “shifted” electricity production from coal fired power plants to natural gas fired plants and renewable energy plants such as wind and solar.

The Supreme Court stayed the CPP from going into effect in 2016, but before a decision by the D.C. Circuit Court of Appeals could be issued, the EPA, from a new Presidential Administration in 2019, found that the CPP exceeded the EPA’s statutory authority under Section 111(d) and simultaneously promulgated the Affordable Clean Energy rule (ACE), which disregarded the second and third BSER measures. Subsequent litigation ensued again, and the D.C. Circuit concluded the 2019 EPA misconstrued Section 111(d) and that the CPP was within the bounds of Section 111(d). The Supreme Court granted petitions for certiorari in 2021 into the present case.

The rational for the 2019 EPA’s repeal was that Section 111(d) was interpreted to “limit[] the BSER to those systems that can be put into operation at a building, structure, facility, or installation.” In other words, the 2019 EPA argued the CPP imposed a restructuring of the national electrical generation “system” that “shifted” existing plants to natural gas or renewable energy plants.

Alternatively, EPA advocates of the CPP argued that they had precedent to regulate in such a way based on the “Mercury Rule.” The agency further argued the historical application of Section 111(d) was too restrictive to address the dangers of climate change caused by CO2 emissions. In order to attain the necessary CO2 emission reductions, the “EPA adopted what it called a ‘broader, forward-thinking approach to the design’ of Section 111 regulations” and focused on “‘improv[ing] the overall power system by lowering the carbon intensity of power generation’” rather than improving performance of individual sources.

The Court held the CPP exceeded its authority under Section 111(d). Through a historical look at the application of Section 111(d) and the CAA the Court stated there is “‘reason to hesitate before concluding that Congress’ meant to confer” on EPA the authority it claims under Section 111(d). Therefore, the Court applied the Major Questions Doctrine, and stated the “hesitation” could only be overcome if the Government pointed to “clear congressional authorization” to regulate in a manner such as the CPP, which fundamentally changes a regulatory scheme. The Court held this skepticism could not be overcome--“it is not plausible that Congress gave EPA the authority to adopt on its own such a regulatory scheme in Section 111(d).”

West Virginia v. EPA is a central case of environmental and administrative law creating precedent on the ability of administrative agencies to respond to new problems, such as climate change, and cuts back on the executive branch’s ability to create law without the express delegation to do so from Congress.

A. Florida v. Georgia

The Supreme Court finally resolved the water rights dispute between the State of Florida and the State of Georgia in April 2021. The history of the dispute goes back decades and involves not only Florida and Georgia, but also Alabama. However, this specific dispute began in 2013 when the State of Florida sought leave to file a bill of complaint with the Supreme Court to obtain an equitable apportionment of the waters flowing in the Apalachicola-Chattahoochee-Flint River Basin (ACF Basin). Florida’s primary complaint was that the State of Georgia’s consumption of the Flint River waters reduced the amount of water flowing to the Apalachicola River. Florida alleged that no agreement or interstate compact existed and therefore the Supreme Court’s equitable apportionment doctrine would govern the Court’s inquiry.

The Supreme Court granted Florida’s request and appointed a Special Master to review the matter and advise the Court. The evidentiary hearing on this matter began on October 31, 2016, and the Special Master issued his report on February 14, 2017. The ultimate conclusion of the report was that Florida failed to demonstrate that the relief it seeks would “afford adequate relief.” In essence, the Special Master concluded that the U.S. Army Corps of Engineers’ management of the ACF Basin could afford Florida the necessary flows it seeks without instituting a consumption cap.

Following the report, the Supreme Court heard oral argument on January 8, 2018 and issued its opinion on June 27, 2018. It reversed the judgment of the Special Master as “too strict” when the Special Master found that “the Court would not be able to fashion an appropriate equitable decree.” In reversing the judgement, the Supreme Court provided five “subsidiary questions” to the “threshold question:”

First, has Florida suffered harm as a result of decreased water flow into the Apalachicola River?. . .

Second, has Florida shown that Georgia, contrary to equitable principles, has taken too much water from the Flint River (the eastern branch of the Y-shaped river system)? . . .

Third, if so, has Georgia’s inequitable use of Basin waters injured Florida? . . .

Fourth, if so, would an equity-based cap on Georgia’s use of the Flint River lead to a significant increase in streamflow from the Flint River into Florida’s Apalachicola River (the stem of the Y)? . . .

Fifth, if so, would the amount of extra water that reaches the Apalachicola River significantly redress the economic and ecological harm that Florida has suffered?

Thereafter, the newly appointed Special Master, following supplemental briefing and oral argument, issued an 81-page report, which, by and large, followed the same conclusion of the first Special Master Report wherein the Special Master recommended that relief Florida sought be denied. The basis for the second Special Master’s ruling was that “Florida failed to prove by clear and convincing evidence that Georgia’s alleged overconsumption caused serious harm” to Florida’s oyster fisheries, its river wildlife, and plant life.

As with the first report, Florida filed exceptions to the Special Master Report, sending this saga back to the Supreme Court in February 2021. The Court noted that for more than a century, it has recognized its inherent Constitutional authority and grant of original jurisdiction to equitably apportion interstate streams between States. Before the Court were two inquiries, injury and causation, which must be proved by clear and convincing evidence.

The Court found that the alleged harm to Florida’s oyster fisheries was more likely caused by Florida’s mismanagement than it was by Georgia’s overconsumption. Regarding river wildlife and plant life, the Court found that Florida’s only evidence was speculative as opposed to “real-world harm.” Therefore, Florida failed to prove that the injuries alleged were caused by Georgia’s consumption.

This case was one of the largest and longest running water rights dispute cases between states in recent memory. The major takeaway is the requirement to prove harm and causation. It is certainly no easy task to demonstrate, but the Court made it clear that it will not exercise its extraordinary authority without strong evidence of actual past or threatened harm.

II. Naturaland Trust v. Dakota Finance LLC

On July 20, 2022, the U.S. Court of Appeals for the Fourth Circuit reversed a district court’s dismissal of a Clean Water Act citizen suit against Arabella Farm. The district court dismissed the suit, finding it lacked jurisdiction because the South Carolina Department of Health and Environmental Control (SCDHEC) was diligently prosecuting the same violations alleged by the environmental groups. In 2017, Arabella Farm began clearing twenty acres of land to create a working farm and event barn for weddings and other events. SCDHEC found the project had insufficient stormwater controls that led to significant erosion and off-site impacts in violation of the National Pollutant Discharge Elimination System (NPDES) program. In September 2019, SCDHEC issued a Notice of Alleged Violation/Notice of Enforcement Conference. In November 2019, the environmental groups sent a notice of intent to sue letter to Arabella Farms detailing Clean Water Act violations, and filed a citizen suit after the 60-day notice period elapsed. One month after the citizen suit was filed, SCDHEC and Arabella Farm entered into a consent order that imposed a $6,000 penalty and required Arabella Farm to obtain a NPDES permit.

The Fourth Circuit questioned whether the Notice of Alleged Violation/Notice of Enforcement Conference was an “adversarial proceeding” such that it could be viewed as diligent prosecution. The Notice did not contain a threat of penalties or sanctions for failure to attend, and the enforcement conference was not open to the public. The court concluded this was not enough to “commence an action within the common understanding of those terms.” Arabella Farm filed its petition for writ of certiorari at the U.S. Supreme Court.

III. Missouri v. Biden

On October 21, 2022, the U.S. Court of Appeals for the Eighth Circuit upheld the district court’s decision that a coalition of thirteen states did not have standing to challenge the Biden Administration’s effort to use the social cost of greenhouse gas calculation in federal regulations. The coalition of states — Missouri, Alaska, Arizona, Arkansas, Indiana, Kansas, Montana, Nebraska, Ohio, Oklahoma, South Carolina, Tennessee and Utah — challenged Executive Order 13,990, alleging violations of the U.S. Constitution and the Administrative Procedures Act (APA). The Eight Circuit found the states’ “highly attenuated theory of injury [did] not satisfy the States’ burden to show the requisite causation.” The court also rejected the States’ alleged sovereign injury claims, noting it was a controversial and unsettled question, and the States’ procedural harm argument, finding the Interagency Working Group was not an “agency” subject to APA’s notice and comment requirements.

This outcome aligned with a similar case decided by the U.S. Court of Appeals for the Fifth Circuit. In Louisiana v. Biden, the Fifth Circuit stayed a preliminary injunction that had enjoined the federal government from using the interim estimates of the social cost of greenhouse gases. The district court had also ordered federal agencies to cease all work that relies upon these calculations, concluding the Biden Administration lacked authority to enforce the use of the estimates in regulatory decision making. The States appealed the Fifth Circuit’s lifting of the stay to the U.S. Supreme Court, which the Court denied.

IV. Plaquemines Parish v. Chevron USA, Inc.

On October 17, 2022, the U.S. Court of Appeals for the Fifth Circuit affirmed a Louisiana federal district court’s order to remand the lead case among numerous lawsuits filed by several Louisiana parishes asserting claims against oil and gas companies under the Louisiana State and Local Coastal Resources Management Action of 1978. The decision is the latest in a lengthy jurisdictional battle that has spanned nearly a decade and involved two removal actions. After plaintiffs filed an expert report that addressed defendants’ operations during World War II, defendants removed the case to federal court for the second time in 2018, asserting the federal-officer removal statute and federal question jurisdiction. The Fifth Circuit affirmed no federal question jurisdiction but sent the case back to the federal district court for reconsideration of the federal-officer jurisdiction question.

On January 11, 2022, the U.S. District Court for the Eastern District of Louisiana concluded “defendants have not demonstrated [] that they were doing any more than complying with regulation” and rejected defendants’ argument that the government contracts with refiners did not extend a contractual relationship between upstream producers and the government. The court remanded the case to state court. The Fifth Circuit affirmed the remand order, finding there was no federal-officer jurisdiction because defendants did not have an unusually close and special relationship with the federal government during World War II.

V. Environment Texas Citizen Lobby v. ExxonMobil Corporation

On August 30, 2022, the U.S. Court of Appeals for the Fifth Circuit affirmed a district court’s finding that plaintiffs had standing and upheld a penalty calculation that ordered ExxonMobil to pay a $14.25 million penalty for unauthorized emissions from the company’s Baytown, Texas complex. The Baytown complex houses a refinery, chemical plant, and an olefins plant. Plaintiffs alleged thousands of self-reported permit violations that occurred between October 2005 and September 2013. Exxon had argued plaintiffs failed to prove traceability for each alleged violation for 3,651 of the violation days. The Fifth Circuit disagreed, finding the district court’s traceability analysis was “thorough and sufficiently explained,” and standing was established through categorical injuries rather than a showing of an injury from each particular violation. ExxonMobil filed a petition for en banc review, which was granted.

VI. Jarkesy v. U.S. Securities and Exchange Commission

On May 18, 2022, the U.S. Court of Appeals for the Fifth Circuit vacated a decision by the U.S. Securities and Exchange Commission (SEC), concluding the SEC’s administrative proceedings are unconstitutional. Jarkesy and his advisory firm, Partrio28, LLC, established two hedge funds with approximately $24 million in assets. The SEC alleged Jarkesy violated securities laws by making misrepresentations about how the funds were managed, audited, and valued. Jarkesy sought to enjoin the agency proceedings, arguing they violated his constitutional rights. The U.S. District Court and the U.S. Court of Appeals for the D.C. Circuit found the court had no jurisdiction and Jarkesy had to exhaust his administrative remedies before the courts had jurisdiction.

The SEC conducted an administrative hearing in accordance with its procedural rules. The administrative law judge (ALJ) rejected the constitutional claims Jarkesy raised at the hearing. On appeal, the Fifth Circuit found these administrative procedures violated three constitutional protections. First, Jarkesy has a right to a jury under the Seventh Amendment where the SEC seeks monetary penalties. Second, Congress failed to articulate an “intelligible principle” when it delegated power to the SEC to choose whether it brings cases before its own administrative law judges or in district court, an unconstitutional delegation of power. Finally, that statutory restrictions on removal of an ALJ from its position violates Article II of the U.S. Constitution. The Court vacated the SEC’s decision on the basis that Jarkesy was denied a jury trial and on the unconstitutional delegation of authority.

On October 21, 2022, the Fifth Circuit denied the SEC’s en banc petition. The six judges dissenting from the denial expressed concern that the panel majority opinion had “deviated from over eighty years of settled precedent” and its “potential application to agency adjudication more broadly raises questions of exceptional importance.”

VII. Suncor Energy (U.S.A.) Inc. v. Bd. of Cnty. Commrs. of Boulder Cnty.

Numerous lawsuits continue related to climate tort allegations against fossil fuel companies. In 2022, many federal courts reaffirmed prior decisions to remand cases back to state courts, finding the claims as alleged arose under state law. Many of the cases are discussed in the 2022 Year in Review chapter from the Climate Change, Sustainable Development, and Ecosystems committee. On June 8, 2022, energy companies petitioned the U.S. Supreme Court in Suncor Energy (U.S.A.) Inc. v. Bd. of Cnty. Commrs. of Boulder Cnty. Arguing a circuit split exists, the petitioners presented two questions. First, “[w]hether federal common law necessarily and exclusively governs claims seeking redress for injuries allegedly caused by the effect of interstate greenhouse-gas emissions on the global climate.” Second, “whether a federal district court has jurisdiction under 28 U.S.C. [§] 1331 over claims necessarily and exclusively governed by federal common law but labeled as arising under state law.” Signaling an interest in this case, on October 3, 2022, the Court invited the U.S. Solicitor General to file a brief to express the view of the United States on whether to grant certiorari to the case.