On Monday, January 9, 2012, the Supreme Court heard argument in a case challenging the Environmental Protection Agency’s issuance of administrative compliance orders under the Clean Water Act, 33 U.S.C. §§ 1251 et seq. (the “CWA”).  Sackett v. United States Environmental Protection Agency, No. 10-1062. 

Chantell and Mike Sackett bought a vacant lot near Priest Lake, Idaho, intending to build their home there.  The lot is zoned residential and is located in a platted subdivision, with sewer and water hookups.  Surrounding lots already have homes built on them.  The Sacketts applied for and obtained the necessary building permits from the local authorities.  Once they began laying gravel, however, they were hit with a compliance order from the EPA.  The order declared the Sacketts’ property to be “wetlands,” and charged the Sacketts with discharging pollutants into the waters of the United States, absent a permit, in violation of 33 U.S.C. § 1311(a).  In the order, the EPA required the Sacketts to return the property to its prior condition and to seek a wetlands permit – costs that, according to the Sacketts, would add up to tens of thousands of dollars, many times the $23,000 they paid for the property.  Failure to comply with the order could result in fines of up to $37,500 per day. 

The Sacketts tried to challenge the wetlands finding – both before the EPA and in federal court under the Administrative Procedure Act, but their challenges were rejected.  The district court in Idaho concluded that the CWA precludes judicial review of compliance orders before the EPA has started an enforcement action in federal court, and granted the EPA’s motion to dismiss.  Sackett v. EPA, No. 08-CV-185-N-EJL, 2008 WL 3286801 (D. Idaho Aug. 7, 2008).  The Ninth Circuit affirmed.  Sackett v. EPA, 622 F.3d 1139 (9th Cir. 2010).  In other words, the only way in which the Sacketts could obtain judicial review of the order would be to violate the order and then raise their arguments in any enforcement action brought by the EPA. 

Arguing on behalf of the Sacketts, Damien Schiff of the Pacific Legal Foundation stated that his clients’ inability to seek relief from the courts when the EPA issues a compliance order under the CWA amounts to a denial of due process.  The majority of the justices seemed sympathetic with his argument.  Justice Stephen Breyer, for example, later commented that not allowing judicial review of administrative actions would represent a “huge upheaval” of federal practice, because “for 75 years the courts have interpreted statutes with an eye towards permitting judicial review, not the opposite.”  Justice Elena Kagan, however, suggested that the Sacketts had not exhausted all of their administrative remedies and could have obtained a wetlands permit from the Army Corps of Engineers.  Mr. Schiff disagreed, stating that having to go through the wetlands permit process before a second agency was not an adequate remedy. 

Deputy Solicitor General Malcolm Stewart argued for the EPA, and stuck to the EPA’s position that the Sacketts’ property is a wetland and that the CWA precludes any judicial review of compliance orders.  The Court did not appear to be persuaded.  In particular, Justice Anthony Scalia and Justice Samuel Alito sharply criticized the EPA’s argument.  Justice Alito remarked at one point that “most ordinary homeowners would say this kind of thing can’t happen in the United States,” adding later that the EPA’s conduct is even more “outrageous” because it can change its mind at any time after issuing the compliance order.

The case is being closely watched by industry and public interest groups alike.  Fifteen different amicus briefs have been filed, fourteen of them in favor of the Sacketts – including briefs filed by the Chamber of Commerce, the State of Alaska and various trade and industry groups.  The media is describing the case as a fight between the “little guy” and big government.  We’ll find out if David or Goliath wins this fight when a decision is issued this spring.  The Court’s decision could impact not only CWA enforcement authority, but possibly also review of compliance orders issued under other federal environmental statutes. 

Carmen R. Toledo is a partner at King & Spalding in Atlanta, Georgia.  

(originally published in the Oil & Gas Law Brief on October 10, 2011)

On August 17, 2011, the Oil & Gas Law Brief reported that a West Virginia judge had entered an order striking down a ban on hydraulic fracturing enacted by the City of Morgantown.  The judge ruled that West Virginia statutes make oil and gas regulation exclusively a matter of state law, and that local governments do not have authority to enact additional regulations.  That judgment is now final. 

Truth, justice and industry prevailed today when the Supreme Court rejected the attempt by various states, New York City and several environmental groups to have the judicial system regulate the limits on green house gas emissions.  In American Electric Power Co. v. Connecticut (No. .10-174), the Supreme Court ruled (in an 8-0 decision) that it would leave the standard setting and green house gas emission controls to the experts.  Since the Clean Air Act and the associated regulations of the Environmental Protection Agency authorized by the Act provide the mechanism by which limits on emissions of carbon dioxide from domestic plants are addressed, "there is no room for a parallel track," and federal common law is not available as a way to sidestep this process.  The Supreme Court's decision overturns the ruling by the Second Circuit that permitted these same plaintiffs to proceed with these lawsuits against various electric utilities, which alleged that the defendants' green house gas emissions were considered a public nuisance that contributed to global warming.

Justice Ginsburg's opinion went on to explain that the system has its own checks and balances.  Specifically, once the limits are set, these same groups can then use the judicial system to challenge the limits. The Court relied on the fact that this process allows those that are best suited to make the determinations to do so. "It is altogether fitting that Congress designated an expert agency, here, EPA, as best suited to serve as primary regulator of greenhouse gas emissions. The expert agency is surely better equipped to do the job than individual district judges issuing ad hoc, case-by-case injunctions. Federal judges lack the scientific, economic, and technological resources an agency can utilize in coping with issues of this order."

The Supreme Court declined to address the state law nuisance claim, finding that its decision on the federal common law question precluded the need to do so.  Justice Sotomayor recused herself  since she was a member of the Second Circuit when it heard oral arguments in Connecticut v. American Electric Power Co.

Thus, for now, it appears that industry will need to keep its eyes on Congress and EPA to make the next move, since victory was achieved in the courtroom.

Carrier not responsible for covering clean-up costs at a CERCLA site under Maryland law. Those costs were incurred to satisfy a regulatory requirement.

Background: On July 9, 1999, the U.S. Environmental Protection Agency ("EPA") expressed its intent to include Industrial Enterprises’ property and other neighboring properties near the Back River in Baltimore County, Maryland, in a Superfund Site designated for cleanup under the Comprehensive Environmental Response, Compensation, and Liability Act (“CERCLA”). The EPA cited the presence of hazardous substances on the Site. At the time of the EPA letter, Industrial Enterprises held a comprehensive general liability insurance policy (“CGL policy”) with Penn America Insurance Company. Industrial Enterprises forwarded the EPA letter to Penn America and requested that it provide a defense.

The insurer denied coverage. Penn America countered that its CGL policy did not provide indemnity for costs incurred by Industrial Enterprises because: 1) such costs are not damages because of "property damage" of a third party, as required for coverage under the CGL policy, and (2) that the pollution exclusion applied because facts to support the exception to the exclusion – that any "release or escape" of the hazardous substances on Industrial Enterprises’ property be "sudden and accidental” – were not demonstrated.

Industrial Enterprises commenced this action for a judgment declaring that Penn America was obligated to pay Industrial Enterprises the amount that it had incurred and reasonably would incur as defense costs in response to the demands made by the EPA.

Issue: 1) Whether a standard CGL policy, which indemnifies the insured for "all sums which the insured shall become legally obligated to pay as damages because of ... property damage," covers the insured’s liability under the CERCLA for costs to remediate the presence of hazardous substances on the insured’s land.

Holding: On appeal, the Court of Appeals reversed the judgment of the lower court, concluding that a standard CGL policy does not cover the insured’s liability under the CERCLA. The Court based its decision on Bausch & Lomb, Inc. v. Utica Mutual Insurance Co., 625 A.2d 1021 (Md. 1993), where the Maryland Court of Appeals held that a similar CGL policy did not cover expenses incurred in response to the State’s regulatory order to remove soil containing hazardous chemicals. Therefore, the Court concluded that Industrial Enterprises’ liability under CERCLA was not liability for "property damage," but rather regulatory liability for response costs. Accordingly, the Court concluded that Penn America’s CGL policy did not cover Industrial Enterprises’ regulatory liability and, therefore, Penn America had no duty to provide Industrial Enterprises with a defense.

The U.S. Supreme Court is getting set to hear the challenge to a federal court of appeals decision allowing several states to pursue a public nuisance suit against various utilities for their alleged greenhouse gas emissions. See American Electric Power Co. v. Connecticut, No. 10-174 (U.S. certiorari petition granted 12/6/10).  Last week the federal government weighed in and asked the Court to overturn the Second Circuit's decision in this public nuisance suit against American Electric Power Co. and other utilities for their greenhouse gas emissions, but on relatively narrow grounds. The brief filed by the Acting Solicitor General argues that the plaintiffs lacked “prudential standing” and that their suit should therefore be dismissed. One central issue in the case is whether the EPA will be the primary regulator of greenhouse gas emissions or whether private parties will be permitted to go directly to court. Should a single judge set emissions standards for regulated utilities across the country — or, as here, for just that subset of utilities that the plaintiffs have arbitrarily chosen to sue? Judges in subsequent cases could set different standards for other utilities or industries, or conflicting standards for these same utilities. A second issue is whether controlling power plant emissions' alleged effects on the climate is a political question beyond the reach of the courts. The government's current position is that if plaintiffs' overall theory is correct, that means that virtually every person, organization, company, or government across the globe emits greenhouse gases, and also virtually every one of them will sustain climate-change-related injuries. Principles of prudential standing do not permit courts to adjudicate such generalized grievances absent specific statutory authorization, said the SG.

This topic will be featured at the breakout session for the Mass Torts & Class Actions SLG at this year's DRI Product Liability Conference in New Orleans. We'd be interested to hear you reaction to the briefs, including the papers from amici. DRI's amicus brief stresses to the Supreme Court that it should reverse the Second Circuit's decision in order to bring fairness, consistency and predictability to public nuisance litigation seeking to redress alleged climate change injuries. Although DRI acknowledges in its brief that the respondents' goal of reducing the threat of possible global climate change is laudable, pursuing a federal common law public nuisance action against a handful of arbitrarily selected energy-generating targets is an improper use of the courts in achieving that end.

The fate of climate change litigation now rests in the hands of the United States Supreme Court. Electric utilities, having suffered a surprising defeat at the hands of the Second Circuit last year in American Electric Power Co. Inc. et al. vs. State of Connecticut, 582 F.3d 309 (2d Cir. 2009), rehearing denied (2d Cir. March 5, 2010) filed a petition for certiorari (.pdf) with the nation’s highest court on August 2, 2010 seeking reversal of the Second Circuit’s opinion reinstating the plaintiffs' federal common law nuisance claims against the utilities for allegedly contributing to global warming. In their cert petition, American Electric, Duke Power, Xcel Energy and Southern Company argue that such a cause of action should not be implied under the common law and that these are political issues that are best left to the Congress to decide.

The utilities' arguments found support from a surprising quarter last week when the Obama Administration weighed in on the side of the Petitioners. In an amicus brief (.pdf) filed on behalf of the Tennessee Valley Authority on August 24, U.S. Solicitor General Neal Katyal argued that the issue should not be resolved through the court system and asks that the matter be remanded to the Second Circuit so that the court can consider the Administration’s recent proposals that greenhouse gases be regulated under the federal Clean Air Act.

The Supreme Court will decide during the coming term whether to accept the case. Notwithstanding the Solicitor General's support and the generally pro-business attitude of the court, the Court's willingness to wade back into the climate change debate is far from certain, particularly given the sharp divide that was evident in the Court's seminal Massachusetts v. EPA opinion. One factor that might potentially influence the court’s attitude is that Justice Sotomayor sat on the Second Circuit panel that heard the American Electric case (but was appointed to the Supreme Court before it was decided).

Climate change litigation has enjoyed a roller coaster ride in the year since American Electric was decided by the Second Circuit last September. A few weeks later, the Fifth Circuit ruled in Comer v. Murphy Oil that federal district court had erred in dismissing claims by Gulf property owners who claimed that the defendants' emissions had increased the ferocity of Hurricane Katrina. Although the full Fifth Circuit subsequently agreed to hear en banc rehearing of Comer, so many of the justices recused themselves due to conflicts of interest that the court was left without a quorum. As the order granting rehearing had the effect of vacating the panel opinion, the dismissal of the appeal reinstated the District Court’s original opinion.
 
The Ninth Circuit is also now considering these issues in Native Village of Kivalina v. Exxon Mobil Oil Corp., a case in which a federal district court in San Francisco dismissed a climate change suit brought by Eskimo villagers who claim that emissions from oil, energy and utility companies have caused Arctic sea ice to recede, threatening their village. In contrast to the opinions of the Second and Fifth Circuits, the California District Court adopted the view that it should not entertain jurisdiction as the public nuisance claims present a non-justiciable political question that should be decided by Congress, not the courts.

Meanwhile, the issue of insurance coverage for climate change claims is moving to the fore. On August 2, 2010, the Virginia Supreme Court announced  that it would agree to hear the insured’s appeal of a state trial court’s ruling AES was not entitled to coverage for the Kivalina plaintiff’s claims on the basis that they failed to seek recovery on account of an "occurrence" as the allegations of climate change were the foreseeable result of the insured's routine discharge of millions of tons of carbon dioxide over the years. Waiting in the wings is the all important issue of whether such claims also involve the discharge of a "pollutant".

On August 10th, the Judicial Panel on Multidistrict Litigation entered an order consolidating the Deepwater Horizon litigation, involving over 300 cases, to the Eastern District of Louisiana before Judge Carl Barbier, who has been asked to serve as transferee judge.  Although BP supported centralization of the cases, it proposed the Southern District of Texas as the transferee court.  The  JPML's opinion can be found at the following link:

http://www.jpml.uscourts.gov/Panel_Orders/Recent_Orders/MDL-2179-Transfer_Order.pdf

Interestingly, the person appointed by the Obama Administration to administer oil spill claims, Kenneth Feinberg, endorsed the current claims process over litigation: “If you have a claim, you would be well advised to file it with this new process.  You will get quicker more generous treatment than if you file a lawsuit.” 

What do you think will be the most effective way of resolving claims arising out of the Deepwater Horizon incident: the claims process or litigation?  Maybe more importantly, what should be the government's role, if any, in encouraging resolution of Deepwater Horizon claims?