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May 2009 issue Prepared by Bowles Rice McDavid Graff & Love LLP
In the latest round of litigation concerning the issuance of § 404 permits by the Army Corps of Engineers (Corps), the United States District Court for the Southern District of West Virginia, in Ohio Valley Environmental Coalition, et al. v. Hurst, et al., ___ F. Supp. 2d ____, 2009 WL 819230 (S.D. W.Va. 2009), again ruled in favor of the environmental groups and against the Corps and, for all intents and purposes, against numerous pending and prospective permittee coal operators. The court (1) vacated the nationwide permit known as “NWP 21” and remanded the matter to the Corps; (2) enjoined the Corps from issuing authorizations pursuant to NWP 21 in the Southern District of West Virginia until the Corps prepares a revised environmental assessment (“EA”) or an environmental impact statement (“EIS”) and also determines that NWP 21 will not have adverse cumulative impacts as required by CWA § 404(e); and, further, (3) enjoined “the Corps and the Intervenors in the litigation from all activities authorized under NWP 21.” This litigation is the result of the Corps’ decision in 2002 to issue NWP 21, which was originally issued in 2002 and expired March 19, 2007. The reissued NWP 21, effective March 19, 2007, is the subject of this litigation. The issue is the use of nationwide permits such as NWP 21 for valley fill activities related to surface coal mining. Specifically, it is the Corps’ evaluation of the environmental impacts associated with NWP 21 that is the crux of the plaintiffs’ challenge in this litigation. The process of issuing a nationwide permit that authorizes valley fill such as NWP 21 is governed by Section 404 of the Clean Water Act (CWA) and the National Environmental Policy Act (NEPA). The discharges of dredged and fill material into the waters of the United States is regulated via either individual or general permits. A nationwide permit is a type of general permit. “Unlike individual permits that only authorize discharges from a specific site, general permits are issued on a state, regional, or nationwide basis.” “Pursuant to CWA § 404(e), general permits authorize the discharge of dredged or fill material for an entire category of activities” and on a nationwide basis. The CWA requires that “the Corps determine, before issuing a general permit, that ‘the activities in [the general permits] category ... will cause only minimal adverse environmental effects when performed separately, and will have only minimal cumulative adverse effect on the environment.” Under NEPA, the Corps must “consider the environmental consequences of [its] actions ....” The Corps is also required “to take a ‘hard look’ at the environmental consequences of an action ....” Further, the Corps is required “to prepare ... [an EIS] for actions that will have a significant impact on the environment.” In making such a determination, the Corps must “decide[ ] whether the action is one that normally does require an EIS, or is categorically excluded from requiring an EIS. If the [Corp] cannot readily determine whether an action will significantly affect the environment, then it must prepare an ... EA….“ "If the Corps determines that its proposed action will not have a significant effect on the environment, then it need not prepare an EIS but may instead issue a Finding of No Significant Impact (“FONSI”).” The Corps determined under the CWA that the activities authorized by NWP 21 would only have “minimal cumulative environmental impacts.” It further determined that an EIS was not necessary under NEPA because “the permitted activities would not result in significant environmental impacts.” The court found these determinations to be “arbitrary and capricious.” The court determined that the Corps’ cumulative impacts determination under the CWA was arbitrary and capricious, and the decision to issue the permit “cannot stand.” With respect to the individual impacts of specific authorizations under NWP 21, the court stated that the Corps did not provide “any information about the cumulative impacts” of individual authorizations. The court found that “the Corps’ minimal cumulative impacts determination is also faulty under CWA because, like its NEPA cumulative impacts analysis, it is based on the success of a mitigation plan whose success is not supported by the Corps’ analysis.” The court determined that the Corps’ cumulative impacts analysis was deficient under NEPA because (1) “the Corps failed to consider the continuing impacts of past actions which is a relevant factor for a cumulative impacts analysis” and (2) “the Corps failed to explain and provide a rational explanation for its conclusion that ‘compensatory mitigation will attenuate cumulative impacts.’” The court ruled the Corps’ decision not to complete an EIS was arbitrary and capricious and ordered the permit remanded to the Corps for preparation of a new EA, FONSI, or an EIS. The effect of this ruling is summed up nicely by the court: “The Corps may not use the nationwide permit process to circumvent its statutory obligations to thoroughly examine the environmental impacts of permitted activities.” The Corps filed a Motion for Clarification of Memorandum Opinion and Order Dated March 31, 2009, seeking clarification with respect to “(1) whether the injunction applies to companies that had not intervened in the case but whose projects were authorized by the Corps under NWP 21 ...; (2) whether the injunction extends to activities beyond the discharge of dredge and fill material into United States waters; and, (3) whether permittees who have already filled United States waters pursuant to NWP 21 ... authorizations are still required to ‘comply with special conditions of the authorization, including performance of all mitigation, and [whether] the Corps may continue to enforce the terms and special conditions of the authorizations.’” The court denied the Corps’ motion, stating, “The March 31, 2009, Order is not ambiguous as to the injunction’s scope: the injunction applies to the parties before the court, and to activities authorized and conditions imposed by the Corps pursuant to it alleged authority under NWP 21 .... Also, the March 31, 2009, Order is not ambiguous as to the vacatur of NWP 21 .... To the extent the Corps’ motion implicates the proper administration of activities previously authorized under NWP 21 ..., I am confident that the Corps ‘is entirely capable of carrying out my unambiguous orders.’” EPA Proposes Rule to Require Mandatory Reporting of GHGs The United States Environmental Protection Agency issued a proposed rule for mandatory greenhouse gas (GHG). The proposed rule was published in the Federal Register on April 10, 2009. The rule would require reporting of emissions of carbon dioxide (CO2), methane (CH4), and nitrous oxide (N2O) from various sources, including CO2 emissions associated with the ultimate combustion of produced coal, methane liberation from underground mines, and all three primary GHGs from stationary combustion taking place on-site at those facilities implicated under the rule. The rule primarily would require reporting at the “facility” level and, generally, the proposed threshold for reporting is 25,000 metric tons or more of CO2 equivalent per year. Those required to report are direct emitters of GHGs and certain suppliers of fossil fuels and GHGs. Additionally, some lucky participants get to report as both emitters and suppliers! Reporting is to begin starting with calendar year 2010. Suppliers of coal, natural gas, petroleum products and other fossil fuels are required to report on an annual basis the volume of fuel placed into the economy and - through use of various carbon content methodologies - the emissions associated with the complete oxidation of the fuel. Emitters include facilities that contain certain “source categories” such as electric power generating plants, landfills, underground coal mines and any facility emitting more than 25,000 metric tons of CO2 equivalent per year from stationary combustion. In the case of underground mines, those subject to quarterly MSHA methane ventilation inspection would report the results from the quarterly inspections, the CH4 liberated from each degasification system well or borehole, the downstream CO2 emissions from their produced coal, and emissions from any stationary combustion devices located at the mine site. The EPA acknowledges that there would be inherent “double reporting” in the program that includes reporting from both upstream (suppliers) and downstream (emitters) sources. However, the EPA maintains that this double reporting is consistent with the appropriations language and would provide valuable information to EPA stakeholders for developing climate change policy and program. The proposed rule would attempt to collect emissions data but would not regulate emissions. Public Comment Hearings were held in Arlington, Virginia, on April 6-7, and in Sacramento, California, on April 16. The public comment period for written submissions closes June 9, 2009. A finalized version of the rule is required per the proposed rule by June, but expected later in the year. For more information: www.epa.gov/climatechange/emissions/ghgrulemaking.html EPA Proposes Finding that GHGs in the Atmosphere Endanger the Public Health and Welfare The EPA’s long awaited response to the United States Supreme Court’s 2007 Massachusetts v. EPA decision was published in the Federal Register on April 24, 2009. The EPA proposed an endangerment finding concerning GHGs, which consists of two key conclusions: (i) that concentration in the atmosphere of six GHGs (including carbon dioxide, methane and nitrous oxide) threaten public health and welfare; and (ii) that combined emissions from new motor vehicles and motor vehicle engines contribute to atmospheric concentrations of these GHGs and “hence to the threat of climate change.” The EPA announced its proposed finding a week before the publication and stated that “an endangerment finding under one provision of the Clean Air Act would not by itself automatically trigger regulation under the entire Act.” The EPA did not propose any associated regulations with this finding. Additionally, the “cause or contribute” prong of an endangerment finding under § 202(a) of the Clean Air Act (CAA) with this proposal is limited to new motor vehicles and engines. Nevertheless, it is widely understood that once the proposal is finalized, the EPA will make similar findings for other sources regulated under the Act. The proposal of an endangerment finding is a necessary first step in triggering a wide array of CAA regulation; however, the finding itself is no guarantee that any such regulation is forthcoming. With an endangerment finding, the EPA would establish the authority to regulate GHG emissions under the CAA through Best Available Control Technology requirements, or New Source Review, or even the creation of a GHG cap-and-trade regime. When and how the EPA may exercise this authority is widely speculated. Together with the EPA’s proposed rule for mandatory GHG reporting (summarized above), this proposal at the least serves to challenge Congress in its current debate over comprehensive climate change legislations (EMLF Update regarding Waxman-Markey Act to appear next month). There are to be two public hearings on the proposed endangerment finding. The first hearing is scheduled for May 18, 2009, in Arlington, VA, and the other on May 21, 2009 in Seattle, WA. Public comments may be submitted on or before June 23, 2009. For more information: www.epa.gov/climatechange/endangerment.html Supreme Court of the United States Finds that EPA Permissibly Relied on Cost-Benefit Analysis in Promulgating Regulations under the CWA At issue are the regulations promulgated by the EPA under 33 U.S.C. § 1326, which rely upon cost-benefit analysis in refusing to mandate closed-cycle cooling for certain cooling water intakes. In regulating cooling water intake structures at, in this case, power plants, the EPA is directed by the Clean Water Act (CWA) to apply a best technology standard to regulate effluent discharge into the waters of the United States. The EPA released Phase I rules, applying to new cooling water intake structures, and Phase II rules, applying to certain large existing facilities (primarily, power plants with an intake of over 50 million gallons of water per day, at least 25 percent of which is used for cooling purposes). In its Phase II rules, unlike the Phase I rules, the EPA does not mandate closed-cycle cooling systems based, at least in part, on a cost-benefit analysis. This case arose upon the complaint of environmental groups and various states that the site-specific, cost-benefit variance was unlawful. The Court of Appeals for the Second Circuit agreed with the challenge and remanded the regulations to the EPA. The Supreme Court of the United States held that the EPA permissibly relied on cost-benefit analysis in its Phase II rules. The majority opinion, written by Justice Scalia, relies on twofold reasoning in upholding the EPA’s reliance. First, “best technology available” may mean the technology that most efficiently accomplishes the tasks of the CWA, not necessarily the technology that achieves the greatest reduction in environmental harm. An agency is only required to have a reasonable reading of the statute and not the only or best reading of the statute. According to Scalia, the CWA admits of degrees in this section where it states a goal for the best technology available to minimize adverse environmental impact instead of eliminate, as is used elsewhere in the CWA. Second, even the position of the environmental groups, states and the Second Circuit admits of the need for some cost-benefit analysis because all parties acknowledge that at some point costs must be compared to benefits (e.g., a company should not be asked to pay billions of dollars to save the life of a single fish). In an opinion written by Justice Breyer, concurring in part and dissenting in part, Justice Breyer is concerned with two aspects of the case: 1) the legislative history was ignored; and, 2) the EPA justifies the rules that are the subject of this case because the costs would be significantly greater than the benefits of complying instead of using its traditional wholly disproportionate standard. Justice Breyer writes that the legislative history would indicate a Congressional intent to restrict, though not forbid, cost-benefit analysis by the EPA. As to the second point, Justice Breyer asserts that the EPA must explain why it has changed its standard, if it has. As such, Justice Breyer would also remand to the EPA to apply its traditional wholly disproportionate standard or adequately explain why the standard has become significantly greater in the context of cost-benefit analysis. The dissent would read § 316(b) of the CWA to mean that the best technology is required unless costs are so high as to render it not “available.” United States Supreme Court Rejects Navajo Nation’s Claim under the Indian Tucker Act The Navajo Nation first began pursuing a claim against the federal government over 15 years ago under the Indian Tucker Act for an alleged breach of fiduciary duty by the Secretary of the Interior. The Tribe’s claim for monetary damages stemmed from a 1964 lease between the Tribe and Peabody Coal Company’s predecessor (the “Lease”). Six years ago, the United States Supreme Court held that the Tribe’s claim for compensation failed, and the court reaffirmed its holding on April 6, 2009. The original term of the 1964 lease at issue in this matter expired after ten years, but was to continue “for so long thereafter as the substances produced are being mined by the Lessee in accordance with its terms, in paying quantities.” The royalty rates payable to the Tribe were subject to reasonable adjustments by the Secretary of the Interior after 20 years and again at the end of each successive ten-year period thereafter. Pursuant to the terms of the lease, the Tribe requested a rate increase in 1984, and the Director of the Bureau of Indian Affairs for the Navajo area issued an opinion letter imposing an increased rate. In response, Peabody filed an administrative appeal. While the appeal was pending, Peabody and the Tribe negotiated a settlement. The Tribe then filed this lawsuit in 1993, claiming that the Secretary of the Interior delayed taking action on Peabody’s appeal in order to pressure the Tribe to settle. The Tribe claimed that the delay violated the United States’ fiduciary duty to act in the Tribe’s best interests. In holding that the Tribe’s claim for compensation failed, the court explained that in order to successfully pursue a claim under the Indian Tucker Act, a tribe must clear two hurdles. First, a tribe “must identify a substantive source of law that establishes specific fiduciary or other duties, and allege that the Government has failed faithfully to perform those duties.” Second, if the tribe meets that threshold, “the court must then determine whether the relevant source of substantive law can fairly be interpreted as mandating compensation for damages sustained as a result of a breach of the duties [the governing law] impose[s].” On April 6, 2009, over 15 years after the Tribe first began pursuing this claim, the United States Supreme Court reversed the Federal Circuit’s holding in favor of the Tribe and held that that the Tribe’s claim for monetary damages under the Indian Tucker Act failed. The court rejected the Tribe’s claim that the Lease was governed by the Navajo-Hopi Rehabilitation Act and reaffirmed its earlier decision that the Indian Mineral Leasing Act of 1938 governed the Lease. The court also held that the Tribe could not rely on the Surface Mining Control and Reclamation Act (SMCRA), where the Lease was issued 13 years prior to the enactment of the SMCRA. Finally, the court also held that the fact that the government exercised certain control over the coal on Indian land was not sufficient on its own to impose liability under the Indian Tucker Act where the Indian Tucker Act explicitly states that only claims arising under “the Constitution, laws or treaties of the United States, or Executive orders of the President” are cognizable. Thus, the court held that the Tribe’s claim for compensation failed where the law cited in support of its argument failed to provide a basis for a lawsuit under the Indian Tucker Act. West Virginia Supreme Court Upholds Sale to Undisclosed Principal Despite Allegations of Fraud The West Virginia Supreme Court of Appeals upheld a decision of the Monongalia County Circuit Court which validated the use of an agent and subsidiary to purchase land for an undisclosed principal. At issue was the propriety of CONSOL Energy, Inc.’s creation of a subsidiary, Terra Firma Company, and a buyer’s broker to purchase approximately 3050 contiguous acres of land in Monongalia County, West Virginia. CONSOL created Terra Firma in order to purchase the properties in the most expeditious and economical fashion. Landowners were approached by the buyer’s broker to sell their property to Terra Firma Company, a wholly owned subsidiary of CONSOL Energy, Inc. Title was acquired in the name of Terra Firma Company. The Morgans, who sold their 173-acre farm in western Monongalia County, West Virginia, to Terra Firma for $525,000.00, asserted various claims, including fraud, misrepresentation, fraudulent inducement and mistake in an effort to reform their deed for greater consideration. The Morgans claimed that had they known CONSOL was the purchaser, they would have sought more money in the sale of their farm. The Morgans contend that during the sale negotiations they were suspicious that Terra Firma might have been a coal company or landfill company. They called their real estate agent on the phone and asked about the identity of Terra Firma and why it wanted the property.Their agent informed them, based upon her own speculation, that Terra Firma was a company of investors who were purchasing the property for land development. The Morgans, without further inquiry, presumed that Terra Firma intended to develop the land for residential housing. After substantial discovery, Terra Firma filed a motion for summary judgment, which the Circuit Court granted. The circuit court found that the “important things” negotiated in reaching the agreement to sell the property were the price, a leaseback provision, and hunting rights; neither Terra Firma's corporate structure, nor Terra Firma's intended use of the property were ever addressed by the negotiations. The circuit court found that there was no indication in the record that Terra Firma's corporate structure as a coal company subsidiary, and no indication that Terra Firma's intended use of the property, were “material” to the negotiations that culminated with the execution of the Real Estate Purchase Agreement. In sum, the circuit court determined that the appellants could not, subsequent to the signing and execution of the real estate contract, claim that any misrepresentations about Terra Firma’s identity and intended use of the land were material to the appellants' decision to sell the land. The circuit court concluded that “seller's remorse based on the discovery that one's neighbors may have negotiated better terms in similar transactions does not constitute ‘damage’” that could form the basis for relief. On appeal, the West Virginia Supreme Court of Appeals agreed. In its per curium decision the court found insufficient evidence to establish a question of material fact of fraud, misrepresentation or inequitable conduct on behalf of Terra Firma. Further, the court noted that the Morgans failed to produce sufficient evidence to establish that the identity of the buyer or intended use of the land materially affected their decision to sell the land to Terra Firma before the purchase agreement was executed. Finally, the court found nothing to suggest that the Morgans relied on any misrepresentations made by Terra Firma. In fact, the record was clear that prior to executing the purchase agreement, the Morgans had no contact with any representatives of Terra Firma. While very fact specific, this decision is important for energy producers and others who seek to purchase minerals and other lands as an undisclosed principal. Court of Appeals for the Tenth Circuit Upholds Site-Specific Federal Plan to Implement Clean Air Act and Remands Severable Fugitive Dust Limit Aspect of the Plan The operator and majority owner of a coal-fired power plant and a group of environmentalists brought suit to challenge a source-specific federal implementation plan promulgated by the EPA pursuant to 42 U.S.C. §§ 7601(a) and (d)(4). Both parties asserted that the EPA acted arbitrarily and capriciously, the former arguing that the EPA’s regulation was too stringent and the latter arguing that the regulation was not stringent enough. The court denied both petitions. The Tribal Authority Rule (TAR) specifies that tribes do not have to submit implementation plans of the Clean Air Act (CAA), as the states do, but may do so voluntarily. If the tribe does not submit a plan, the EPA covers any regulatory gap by offering a federal plan. The power plant at the center of this lawsuit had voluntarily complied with New Mexico’s plan, though the Navajo Nation had not submitted a tribal implementation plan of the CAA. In order to cover the regulatory gap created by this power plant operating in Navajo Nation, the EPA, in negotiation with the owner/operator, Navajo Nation, and New Mexico created a plan that was similar in many ways to the New Mexico plan only geared toward serving as a site-specific plan. That plan was published in 1999 and public comment was sought. In 2006, the EPA modified its site-specific federal plan and included a 20 percent opacity limit, removing an exception for exceeding that opacity during unavoidable malfunctions (though an affirmative defense was provided for). During the comment period, the owner/operator challenged the 20 percent opacity limit by claiming: (1) that the current pollution control equipment at the plant could only meet that standard 99.8% of the time, necessitating a 0.2 percent exceedance similar to the 0.8 percent exceedance that had been approved in North Carolina’s plan; and, (2) that the provision of an affirmative defense to exceedance during unavoidable malfunction insufficiently protected the owner/operator and was unfair on a couple of grounds. Environmentalists commented that the federal plan had to match the state plans for completeness, and that the EPA could not strictly rely on New Mexico’s plan for making a federal plan because more stringent emissions limits were required. In the petition, which is the subject of this opinion, the owner/operator and environmentalists argue that the plan is arbitrary and capricious, the former because it is too stringent and cannot be met with existing pollution control equipment at the plant, and the latter because it is not stringent enough and not supported by modeling and air quality analysis. Ultimately, the Court of Appeals for the Tenth Circuit denied the petition of the environmentalists because the EPA is not required to meet states’ completeness requirements when filling a regulatory gap pursuant to TAR. Instead, the agency may use discretion to fill any regulator gaps. Attainment and maintenance are the keys to every implementation plan of the CAA. Moreover, the federal plan is a stricter version of New Mexico’s plan, which has been studied and approved, thereby indicating that this federal plan is reasonable. Likewise, the court denies the petition of the owner/operator because the EPA provided an adequate rationale for its decision regarding the opacity limit. As to a corollary issue in the case regarding the fugitive dust limit of the federal plan, the court deems it severable and remands that part of the case pursuant to the wishes of all parties. D.C. Court of Appeals Vacates Portions of MSHA’s Final Rule Regarding Mine Rescue Teams; Three Provisions Violate the Miner Act The United States Court of Appeals, District of Columbia Circuit, granted the United Mine Workers of America’s petition for review regarding three provisions of the Mine Safety and Health Administration’s (MSHA) final rule concerning mine rescue teams. The MINER Act requires a “small mine” (36 or less employees) to make available two mine rescue teams whose members train at that mine at least semi-annually. MSHA’s final rule allowed certain types of rescue teams to train only once a year. The court rejected this distinction, noting the MINER Act’s unambiguous requirement that every team must train at the mine at least semi-annually. The MINER Act also requires all rescue teams to participate in two local mine rescue contests each year. The court invalidated a portion of the final rule allowing team members who are state employees with certain duties to substitute job experience for one of the contests. Citing the explicit language of the MINER Act, the court rejected MSHA’s position that work experience, as a “functional equivalent” of training, could substitute for participation in one of the contests. In addition, the court held that in light of the MINER Act’s explicit demand for experiential education, state employees cannot satisfy the contest participation requirement by serving as a judge. The court vacated and remanded these portions of the final rule to MSHA for further reconsideration. Federal District Court Denies Coal Company’s Motion for Summary Judgment in Trade Secret and Fiduciary Duty Case The United States District Court for the Western District of Pennsylvania denied the defendant’s motion for summary judgment in the case of Crown Coal & Coke Company v. Compass Point Resources, LLC; James H. Hoyt; and Courtney O. Taplin, Civil Action No. 07-1208, 2009 WL 891869 (W.D. Pa.), in an order dated March 31, 2009. Crown Coal & Coke Company (Crown), with offices in Pittsburgh, Pennsylvania, sells coal, coke and other raw materials from various suppliers to steel companies and other manufacturers. Compass Point Resources, LLC (Compass) is a competitor to Crown in this same market and was founded by James H. Hoyt and Courtney O. Taplin in the state of Ohio. James H. Hoyt and Courtney O. Taplin are former vice presidents of Crown who organized Compass and allegedly negotiated contracts and conducted business operations before resigning their positions with Crown. A great number of legal issues between the parties have arisen from these circumstances including the alleged misuse of lap top computers and proprietary information. Among the legal issues in the case, Crown alleges in its complaint (1) breach of a fiduciary duty, (2) tortious interference with business relationships, (3) misappropriation of trade secrets, (4) civil conspiracy, (5) conversion and (6) the civil violation of the Computer Fraud and Abuse Act. Compass filed a motion for summary judgment. The court denied the motion, completely finding numerous material issues of fact in dispute. The court discussed some of the disputed facts which stem from the timing and existence of various contractual relationships between the two parties and third-party vendors and customers. The court further cited other disputed material facts involving the alleged content, use and deletion of business information on the defendant’s lap top computers provided by Crown for their use as employees. Compass has filed counterclaims against Crown for (1) unjust enrichment, promissory estoppel, (2) tortious interference with business relationships, (3) violation of the Computer Fraud and Abuse Act and, (4) libel. Crown has moved for summary judgment as well, but this decision of the court has yet to be released.
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