Wednesday, May 27, 2015

Clean Water Act: New Rule Significantly Expands Reach of Federal Jurisdiction

On May 27, 2015, the Environmental Protection Agency (“EPA”) and the U.S. Army Corps of Engineers (“Corps”) finalized the long-anticipated Clean Water Rule. The Rule defines the term “waters of the United States” as used by the Clean Water Act, 33 U.S.C. § 1251 et seq. (the “CWA”). The impact of the definition is to prescribe the scope of federal jurisdiction for regulating activity associated with waters of the United States. The Rule will be effective 60 days after publication in the Federal Register. Although the Rule has not yet been published in the Federal Register, an advance draft of the final rule can be accessed here

According to the government, the intent of the Rule is to make the process of identifying “waters” subject to the requirements imposed by the CWA “easier to understand, more predictable, and consistent with the law and peer-reviewed science, while protecting the streams and wetlands that form the foundation of our nation’s water resources.” Clean Water Rule Preamble at 7. As a practical matter, the new Rule substantially extends the extent of claimed federal jurisdiction over water resources nationwide, will result in significant costs for the regulated community, and, as it is applied, will likely be subject to numerous legal challenges.

The extent of federal CWA jurisdiction has been addressed in three seminal Supreme Court cases. In the first, United States v. Riverside Bayview Homes, 474 U.S. 121 (1985), the Supreme Court issued an unanimous opinion deferring to the Corps’ ecological judgment and upholding the inclusion of certain adjacent wetlands in the regulatory definition of “waters of the United States.” In Solid Waste Agency of Northern Cook County v. U.S. Army Corps of Engineers, 531 U.S. 159 (2001), the Court struck down the government’s overbroad interpretation of the CWA extending jurisdiction over non-navigable intrastate ponds on the basis that the ponds supported migratory bird populations. Finally, in Rapanos v. United States, 547 U.S. 715 (2006), a split court addressed the extent of permissible CWA jurisdiction over waters that are not navigable in a traditional sense. The plurality Rapanos opinion held that federal jurisdiction could only extend over non-navigable waters if they exhibit a relatively permanent flow or, in the case of wetlands, where there is a continuous surface water connection between the wetland and a relatively permanent waterbody. Justice Kennedy’s concurring opinion held that CWA jurisdiction extends to wetlands and non-navigable waterbodies provided that there is a “significant nexus” to a traditional navigable waterway.

In response to the Supreme Court cases addressing CWA jurisdiction,  EPA and the Corps issued guidance in 2003 (post-SWANCC) and 2008 (post-Rapanos) seeking to clarify the extent of federal jurisdiction over waterways and wetlands. According to EPA, this guidance was insufficient, requiring complex and resource intensive “case-specific” jurisdictional determinations that resulted in inconsistent interpretations of CWA jurisdiction and perpetuated ambiguity over the extent of federal authority. Clean Water Rule Preamble at 13. EPA initiated a rulemaking to adopt the Clean Water Rule to define “waters of the United States” in an effort to “make the process of identifying waters protected under the CWA clearer, simpler, and faster.” Id.

Before issuing the current draft Rule, EPA and the Corps published a proposed rule addressing the scope of CWA jurisdiction in April 2014. The government received public comments for 200 days and, according to the government, over 1 million public comments were received. In adopting the final Rule, EPA and the Corps relied substantially upon a report -- Connectivity of Streams and Wetlands to Downstream Waters: A Review and Synthesis of the Scientific Evidence -- finalized by EPA’s Office of Research and Development in early 2015. That Report, a copy of which is available here, is based upon the government’s review of more than 1,200 peer-reviewed publications. According to EPA, the Science Advisory Board also reviewed the adequacy of the Report and the technical basis for the rulemaking.

According to EPA, the new Rule accomplishes the following:
  • Clearly defines and protects tributaries that impact the health of downstream waters.” The Rule concludes that tributaries are “waters of the United States” and extends federal jurisdiction over any “tributary” that shows physical features of flowing water (e.g., a bed, bank, and ordinary high water mark). Clean Water Rule Preamble at 19.
  • Provides certainty in how far safeguards extend to nearby waters.” The Rule provides that CWA jurisdiction extends to “adjacent waters.” Those waters are defined as waters or wetlands that are “bordering, contiguous, or neighboring, including waters separated from other ‘waters of the United States’ by constructed dikes or barriers, natural river berms, beach dunes and the like.” Clean Water Rule Preamble at 20.
  • The term “neighboring,” is defined in the rule to include: (i) waters located in whole or in part within 100 feet of the ordinary high water mark of a traditional navigable water, interstate water, the territorial seas, an impoundment of jurisdictional water, or a tributary…”; (ii) “floodplain waters,” meaning “waters located in whole or in part in the 100-year floodplain and  that are within 1,500 feet of the ordinary high water mark of a traditional navigable water, interstate water, the territorial seas, an impoundment, or a tributary …”; and (iii) waters located in whole or in part within 1,500 feet of the high tide line of a traditional navigable water or the territorial seas and waters located within 1,500 feet of the ordinary high water mark of the Great Lakes. Id.
  • Protects the national’s regional water treasures.” The Rule identifies five types of isolated “waters” that will now be subject to “a case-specific analysis” to determine if a significant nexus exists with a “water of the United States”: (i) Prairie potholes, (ii) Carolina and Delmarva bays, pocosins, western vernal pools in California, and Texas coastal prairie wetlands. The Rule requires that EPA and the Corps analyze such “waters” “‘in combination’ (as a group, rather than individually) in the watershed…” Clean Water Rule Preamble at 22.
  • Focuses on Streams, not ditches.” The Rule exempts certain ditches from CWA jurisdiction. This exclusion extends to ditches with “ephemeral flow that are not a relocated tributary or excavated in a tributary, and ditches with intermittent flow that are not a relocated tributary, or excavated in a tributary, or drain wetlands.” Clean Water Rule Preamble at 25. To the extent that ditches are not exempted by the terms in Rule, they are subject to regulation under the CWA.
EPA has prepared the following chart showing how the new definitions adopted by the Rule will alter the extent of federal jurisdiction over water resources as compared to prior agency interpretations and the terms provided in the proposed rule:

The regulated community, including industry and agricultural associations, have concluded that the Rule will substantially increase the geographic reach of CWA jurisdiction. Illustrations prepared by the Farm Bureau, showing how the new definitions will extend the geographic scope of CWA authority, are available here. For example, many small, isolated geographic areas with wetland characteristics that would have fallen outside CWA jurisdiction under existing Supreme Court precedent and prior agency interpretations will now be regulated or, at a minimum, require a case-by-case evaluation for jurisdiction (e.g., vernal pools, prairie potholes, etc.) that is both time-consuming and expensive.

Although EPA and the Corps argue that the Rule “does not interfere with or change private property rights, or address land use,” as a practical matter the Rule will require many property owners that were not previously regulated by the CWA to engage with the Corps to determine whether there are jurisdictional waters and wetlands on their property and, if so, to pursue permits prior to any development or other activities within the regulated area.

Expected consequences as a result the Rule include:
  • Expanded Jurisdiction and Burden on the Regulated Community. EPA and the Corps, via adoption of the Rule, seek to dramatically expand the geographic reach of federal jurisdiction under the CWA. As a result, many property owners will now be regulated by the CWA for the first time. Prior to development or intrusive activities in potentially regulated areas, those property owners will need to retain consultants to assess the extent of federal jurisdiction, potentially seek an approved jurisdictional determination from the Corps and/or a permit, and either mitigate potential impacts or alter development on, or use of their private property. For some property owners, activity that was previously lawful on their private property will now be subject to CWA jurisdiction. For example, existing mining (e.g., sand, gravel, etc.) in an area with prairie potholes or vernal pools will likely require a jurisdictional evaluation prior to continued operation.
  • Regulatory Confusion. In the short-term, there is likely to be substantial confusion among regulators, as they come up to speed with the requirements in the new Rule, and throughout the regulated community as the new Rule is implemented. This confusion may result in additional enforcement activity. There is also likely to be confusion about whether the new Rule will apply to pending permit applications and existing, unresolved enforcement actions.
  • Slower Permitting. Although EPA and the Corps claim that the Rule will reduce ambiguity, in the short term we expect confusion caused by the new definitions will further slow the permitting process for all. Additionally, because of the substantial increase in the geographic reach of CWA jurisdiction, an increase in permit applications (or requests for approved jurisdictional determinations) will likely tax Corps and EPA resources. Delay in issuing permits and approved jurisdictional determinations will result in substantial transaction costs and other economic damages to the regulated community.
  • Legal Challenges to Scope of the Rule. We expect legal challenges to the Rule, both in connection with the rulemaking itself, and as the Rule is applied on a case-by-case basis. It will likely take years for legal precedent to accumulate to the point where the full extent of CWA jurisdiction claimed by the Rule is clearly specified and understood.
  • Congressional Opposition. Republicans in Congress have already started efforts to overturn the Rule. On May 12, for example, the House, passed legislation (by a vote of 261-155) that would require EPA and the Corps to withdraw the Rule. The Senate is exploring similar legislation. Although the Obama Administration has already stated that President Obama would veto any such legislation, there is likely to be a continuing political show-down over the Rule through the 2016 election and beyond.
-- Tom Boer

For more information, contact Tom Boer at jtb@bcltlaw.com or (415) 228-5413.

Thursday, April 16, 2015

Landowners, Developers Win Big In Wetlands Case

Building on a 2012 U.S. Supreme Court decision, the Eighth Circuit ruled on April 10th that Clean Water Act jurisdictional determinations made by the U.S. Army Corps of Engineers can be challenged in a “pre-enforcement” context. Hawkes Co., Inc. v. U.S. Army Corps of Engineers, No. 13-3067, __ F.3d __,  (8th Cir. April 10, 2015). The decision will provide project developers and landowners with a powerful tool for ensuring that regulators do not intrude on projects over which they have no jurisdiction.

Section 404 of the Clean Water Act (“CWA”) requires obtaining a permit from the U.S. Army Corps of Engineers (the “Corps”) to discharge dredged or fill materials into “navigable waters.” 33 U.S.C. § 1344. The CWA defines “navigable waters” to mean “waters of the United States.”  33 U.S.C. § 1362(7). The Corps and EPA have broadly construed “waters of the United States”  to apply to many non-navigable waterbodies, including certain wetlands not connected to a surface water. As a result, the scope of “waters of the United States,” and therefore the bounds of federal jurisdiction under the CWA,  has been a highly contentious issue, and the subject of several Supreme Court decisions and ongoing federal rulemaking.
In Hawkes, the affected landowners—owners of a peat mine—contended that the Corps had exceeded its jurisdictional authority by classifying a wetlands as “waters of the United States” subject to the CWA. Such a determination by the Corps can spell the death knell for a proposed project because an “average applicant for an individual Corps permit ‘spends 788 days and $271,596 in completing the process.’” Hawkes, slip op. at 10, quoting Rapanos v. United States, 547 U.S. 715, 721 (2006). In Hawkes, the situation was worse—Corps regulators had “repeatedly made it clear” that a permit to mine peat would ultimately be refused. Hawkes, slip op. at 10.

Previously, persons or businesses seeking to challenge a jurisdictional determination faced a no-win situation: they had to “either to incur substantial compliance costs (the permitting process), forego what they assert is a lawful use of their property, or risk substantial enforcement penalties.” Hawkes, slip op. at 8. The delays inherent in the Corps’ permitting process meant that if the challenger lost the lawsuit disputing the jurisdictional determination, the challenger could be subject to extremely high fines because the CWA authorizes penalties of $37,500 per day per violation.

The Supreme Court’s decision in Sackett v. U.S. Environmental Protection Agency set the stage for the Hawkes decision. In Sackett, the Supreme Court held that a jurisdictional determination is a final agency action subject to judicial review, and that the CWA does not preclude pre-enforcement judicial review of administrative compliance orders issued by the agency to the landowner. 566 U.S. ___, 132 S. Ct. 1367 (2012). The Hawkes decision takes the Sackett decision one step further by holding that the CWA allows these jurisdictional determinations to be challenged even before the agency commences any enforcement action, administrative or otherwise.

Outlook

The Hawkes decision creates a circuit split because a prior Fifth Circuit case determined that jurisdictional determinations are not reviewable in court in a pre-enforcement context. See Belle Co., LLC v. U.S. Army Corps of Eng’rs, 761 F.3d 383 (5th Cir. 2014), cert denied, 83 U.S.L.W. 3291 (Mar. 23, 2015) (No. 14-493). Given the Supreme Court’s decision in Sackett, the circuit split on a topic of significant controversy, and the Court’s consistently strong interest in CWA jurisdiction—see United States v. Riverside Bayview, 474 U.S. 121 (1985), Solid Waste Agency of Northern Cook County v. U.S. Army Corps of Engineers, 531 U.S. 159 (2001), and Rapanos v. United States, 547 U.S. 715 (2006)—review by the U.S. Supreme Court is a distinct possibility.

- Josh Bloom and Dave Metres

For more information, contact Joshua Bloom at (415) 228-5406 or jab@bcltlaw.com, or David Metres at (415) 228-5488 or dmm@bcltlaw.com.

Tuesday, April 7, 2015

UPDATE: Citadel Dumps Challenge to San Benito County Hydraulic Fracturing Ban

Citadel Exploration has abandoned its legal challenge to San Benito County’s Measure J, a voter-sponsored initiative that banned several enhanced recovery methods of extracting oil and gas, including hydraulic fracturing and cyclic steaming. Citadel’s plan to develop oil wells in a remote area of San Benito County are currently undergoing environmental review, and it filed a lawsuit last month seeking $1.2 billion in damages. Its motives for abandoning the claim are not clear.

For more detail on the history of this legal challenge, see this March 3, 2015 blog post.

- Kathryn Oehlschlager

For more information, contact Kathryn Oehlschlager at klo@bctlaw.com or (415) 228-5458

California Issues Emergency Regulations Restricting Underground Injection in Connection with Oil and Gas Recovery

The California Department of Conservation (“Department”) proposes to adopt emergency regulations purported to bring California’s underground injection control program into compliance with the federal Safe Drinking Water Act (“Act”). These regulations will be submitted to the Office of Administrative Law on April 9, 2015, and are scheduled to go into effect on April 20, 2015. This is the next step in the systematic statewide review of oil and gas injection practices being conducted by the state Division of Oil, Gas, and Geothermal Resources (“DOGGR”) and the State Water Resources Control Board (“State Water Board”) at the behest of U.S. EPA.

Enacted in 1974, the Act requires that an underground source of drinking water (“USDW”) be protected from contamination by injection wells. In the early 1980s, through DOGGR, California applied for and received primacy to implement a Class II Underground Injection Control (“UIC”) program. The UIC Class II regulatory program extends to wells that inject fluid associated with oil and gas production.

On Thursday of last week, the Department made a finding of emergency stating that it had identified over 2,500 wells in California (including both enhanced oil recovery injection wells and disposal injection wells) that “may have been improperly approved for injection into non-exempt aquifers protected by the Act.” A corrective action plan formulated by U.S. EPA, DOGGR, and the State Water Board, calls for DOGGR to implement a compliance schedule for phasing out injections into USDWs, either by obtaining an aquifer exemption or by halting injection into the aquifer.

The following compliance deadlines have been established by U.S. EPA:
  • October 15, 2015 is the shut-in deadline for wells injecting into non-exempt, non-hydrocarbon-bearing aquifers with less than 3,000 mg/L total dissolved solids (“TDS”) that do not have an aquifer exemption;
  • December 31, 2016 is the shut-in deadline for wells injecting into 11 specific aquifers historically treated as exempt by U.S. EPA, unless U.S. EPA takes further action to affirm exemption of the pertinent aquifer(s) before that deadline; and
  • February 15, 2017 is the shut-in deadline for all wells injecting into non-exempt aquifers with less than 10,000 mg/L TDS that do not have an aquifer exemption.
The proposed regulations would establish a civil penalty of $25,000 per day for each well in which injection occurs beyond the compliance deadline.

U.S. EPA’s mandates are significant in part because U.S. EPA may withdraw California’s primacy authorization under the Act if the State fails to comply with the terms of its Primacy Agreement and fails to take additional corrective actions.

- Kathryn Oehlschlager, Tom Boer, and Sherry Jackman

For more information, contact Kathryn Oehlschlager at klo@bcltlaw.com or (415) 228-5458, Tom Boer at jtb@bcltlaw.com or (415) 228-5413, or Sherry Jackman at sej@bcltlaw.com or (415) 228-5412.

Ninth Circuit Addresses Several CERCLA Issues of First Impression in the Circuit

In AmeriPride Services Inc. v. Texas Eastern Overseas Inc., the Ninth Circuit examined several issues under CERCLA, some of which were issues of first impression in the Circuit, including:
  1. whether a district court must apply a specific method of allocating the set-off for settlements between private CERCLA parties, 
  2. whether a party’s right to seek contribution for costs paid in third-party settlements requires an independent analysis of whether the settlement costs were “necessary” response costs incurred consistent with the National Contingency Plan (“NCP”), and
  3. how to properly determine the date on which prejudgment interest begins to accrue in private party CERCLA cost recovery actions.1
The facts of the case are complicated, but worth reciting because they were essential to the Ninth Circuit’s analysis. The case involved PCE contamination at an industrial site located in Sacramento, California (“Site”). Valley Industry Services (“VIS”) had operated a dry cleaning and laundry business at the Site for 17 years, and had later merged with Texas Eastern Overseas, Inc. (“TEO”), which assumed VIS’s liabilities. During a portion of the time VIS operated at the Site, VIS was a wholly owned subsidiary of Petrolane, Inc. (“Petrolane”).
 
In 1983, Petrolane sold the Site, which eventually came under the ownership of AmeriPride Services Inc. (“AmeriPride”). During AmeriPride’s period of Site ownership, additional PCE was released into soil and groundwater. Contamination spread onto adjacent property owned by Huhtamaki Foodservices (“Huhtamaki”), and contaminated groundwater wells owned by California-American Water Company (“Cal-Am”). Chromalloy American Corporation (“Chromalloy”), a nearby property owner, also contributed to the contamination at the Site.
 
Upon discovering PCE in soil, AmeriPride contacted regulatory authorities and was instructed to conduct sampling and install monitoring wells at the Site. A State agency then took regulatory control of the Site, and AmeriPride incurred costs in connection with Site investigation and remediation under the authority of the State agency.
 
In 2000, AmeriPride filed an action in the District Court for the Eastern District of California against VIS, Petrolane, TEO, and Chromalloy under CERCLA sections 107 and 113. TEO asserted a counterclaim under CERCLA section 113 for contribution. While the litigation was pending, AmeriPride settled with Chromalloy and Petrolane, for $0.5 million and $2.75 million, respectively.
 
Thereafter, Cal-Am and Huhtamaki  separately sued AmeriPride, which settled each matter in exchange for a release of claims. AmeriPride paid Cal-Am $2 million to settle claims for response costs, damages, and other relief relating to well contamination, and paid Huhtamaki $8.25 million to settle claims for cost recovery claims under CERCLA and state law, as well as common law causes of action for nuisance, trespass, and negligence. The district court approved these settlements in an order that noted that it would apply the “proportionate share approach” of the Uniform Comparative Fault Act, (“UCFA”) for purposes of determining how the settlements would impact the nonsettling parties.
 
On summary judgment, the district court found that TEO was responsible for AmeriPride’s response costs under CERCLA section 107 as a matter of law, but required AmeriPride to seek contribution for its settlement amounts paid to Cal-Am and Huhtamaki under CERCLA section 113, and permitted AmeriPride to amend its complaint to assert its claims for those costs under section 113. The district court did not address whether the Cal-Am and Huhtamaki settlements were for necessary response costs incurred consistent with the NCP, although it noted that AmeriPride’s other response costs satisfied that requirement. The district court set a bench trial to resolve remaining issues.
 
Following the bench trial, the district court entered a judgment against TEO, finding that AmeriPride had incurred $15,508,912 in damages, subject to equitable allocation. This amount was calculated by subtracting the $3.25 million in settlement payments AmeriPride received from Chromalloy and Petrolane from a calculated $18,758,912 in total response costs. Next, the district court allocated the $15,508,912 amount equally between AmeriPride and TEO. Following unsuccessful post-trial motions, TEO timely appealed the district court’s judgment.
 
On appeal, TEO first argued that CERCLA requires that district courts apply the “proportionate share approach” of the UCFA  to determine how to credit settlements in cases involving private settlements with a subset of the potentially responsible parties.
 
As the Ninth Circuit explained, under the UCFA “proportionate share approach,” when an injured party settles with one of multiple tortfeasors, the settlement reduces the injured party’s claims against the nonsettling tortfeasors by the amount of the settling tortfeasor’s proportionate share of the damages without regard to the dollar amount of the settlement. Under this approach, the nonsettling tortfeasors are responsible only for their proportionate share of the costs, even if the settling tortfeasor settles for less than its fair share of the injury. Therefore, the nonsettling tortfeasor bears the risk of not being fully reimbursed for all of its recoverable costs.
 
In contrast, under the “pro tanto approach” of the Uniform Contribution Among Tortfeasors Act (“UCATA”),  when an injured party settles with one of multiple tortfeasors, the settlement reduces the injured party’s claims against the nonsettling tortfeasors by the dollar amount of the settlement. Under this approach, if a settling tortfeasor settles for less than its proportionate share of the injury, the nonsettling tortfeasors will pay more than their proportionate share of the injury. Similarly, if a settling tortfeasor settles for more than its  proportionate share, the nonsettling tortfeasors may reap a benefit.
 
Consistent with First Circuit jurisprudence, and contrary to Seventh Circuit jurisprudence, the Ninth Circuit held that in allocating liability to a nonsettling defendant in a CERCLA contribution action between two private parties, the district court is not required to apply either the UCFA “proportionate share approach” or the UCATA “pro tanto approach,” but instead enjoys discretion to determine the most equitable method of apportionment. The Ninth Circuit noted that imposing a mandatory directive was contrary to congressional intent behind CERCLA. Specifically, the Court found compelling the fact that CERCLA expressly requires the use of the UCATA “pro tanto approach” when the federal or state government settles with a private party, but is silent on what approach to use with respect to settlements between private parties. The Ninth Circuit interpreted that silence to mean that “Congress did not intend to impose a uniform requirement for a particular approach in private party settlements.
 
Despite the Ninth Circuit’s conclusion that district courts have discretion to determine the method for allocating settlement set-offs in the context of private party settlements under CERCLA , the Court nevertheless vacated the district court’s judgment and remanded the case.  In doing so, the Ninth Circuit reasoned that because the district court first ruled that it was adopting the UCFA “proportionate share approach,” but then effectively applied the UCATA “pro tanto approach,” TEO did not have a reasonable opportunity to present evidence and argument regarding the fairness of the court’s allocation. Therefore,  remand was necessary to give the district court an opportunity to explain how its approach complied with CERCLA section 113 and furthered the goals of CERCLA, whether under the UCFA “proportionate share approach” or the UCATA “pro tanto approach.”  
 
On appeal, TEO also argued that the district court made two other legal errors in calculating the amount subject to equitable allocation, by failing to determine whether AmeriPride’s settlements with Huhtamaki and Cal-Am were solely for “necessary” response costs incurred consistent with the NCP, and by basing the prejudgment interest accrual date on the date the costs were incurred by AmeriPride on the grounds that the interest accrual date was a matter of equity rather than statutory requirement.
 
In accordance with the Tenth Circuit’s jurisprudence and based on “the statutory scheme as a whole,” the Ninth Circuit found that consistency with the NCP is an element of a CERCLA section 113 claim, as is the case with a CERCLA section 107 claim. The Court first examined the structure of CERCLA, noting that section 113 incorporates section 107 to the extent it delineates the nature of recoverable costs. Next, the Court reasoned that allowing a party to recover settlement money in a contribution action without first requiring the party to prove that the settlement reimbursed the recipient for necessary response costs incurred consistent with the NCP could produce incongruous results—as, for example—AmeriPride could successfully defend a 107 action by Huhtamaki or Cal-Am by establishing inconsistency with the NCP, settle with Huhtamaki and Cal-Am for liability under state law, and then seek contribution under CERCLA section 113 against TEO for the settlement monies it paid. Therefore, the Ninth Circuit concluded that the district court erred in failing to determine the extent to which the amounts paid by AmeriPride to Cal-Am and Huhtamaki were incurred for necessary response costs consistent with the NCP.
 
With respect to the issue of the prejudgment interest accrual date, the Ninth Circuit concluded that because CERCLA section 113 incorporates the liability provisions of section 107, the district court was not free to exercise discretion in determining the methodology for calculating prejudgment interest. Rather, the Ninth Circuit joined the majority of other circuits having addressed the issue and concluded that the 107 prejudgment interest provision—stating that interest accrues from the later of the date of a payment demand or the date of an expenditure—was to be read into the contribution provisions under CERCLA section 113. As a result, on remand, the Ninth Circuit instructed the district court to apply the statutory interest provision in CERCLA section 107 to determine when interest began to accrue on the costs incurred by AmeriPride. 
 
       1  The Ninth Circuit also considered a discrete state law issue—whether the assignment of a party’s causes of action for recovery against its insurers  is proper under California Code of Civil Procedure section 708.510—and concluded that it was not, as that section limits assignments to “all or part of a payment due,” which does not include causes of action.
 
 
For more information, contact Rick Coffin at rcc@bcltlaw.com or (415) 228-5420, Marc Zeppetello at maz@bcltlaw.com or (415) 228-5496, or Sherry Jackman at sej@bcltlaw.com or (415) 228-5412.

Friday, March 20, 2015

Federal Government Takes First Steps to Impose Regulation of Hydraulic Fracturing on Public Lands

On March 20, 2015, the Interior Department announced the issuance of a final rule regulating hydraulic fracturing on Federal and American Indian lands. The rule was initially proposed by the Bureau of Land Management (“BLM”) on May 11, 2012, and, on May 24, 2013, the BLM published a supplemental notice of the rulemaking due to significant public interest in the first draft of the rule. After the review of more than 1.5 million public comments, BLM has issued the final rule, which will take effect ninety days after publication in the federal register.

The Rule will regulate the use of hydraulic fracturing on Federal and American Indian lands and mineral estates managed by BLM. The Rule, therefore, will apply to future oil and gas extraction on approximately 700 million acres of sub-surface mineral estate underlying both Federal and non-Federal lands and an additional 56 million acres of American Indian lands. According to BLM, there are already approximately 100,000 oil and gas wells on public lands managed by BLM, and 90% of current wells placed on Federal lands involve the use of hydraulic fracturing.

The new requirements imposed on hydraulic fracturing will augment existing BLM regulations for oil and gas operations specified at 43 C.F.R. § 3162.3-1 and Onshore Oil and Gas Orders 1, 2 and 7. Most of these requirements have been in place for at least 25 years.

Key components of the Rule include:
  • Provisions to ensure the protection of groundwater supplies by requiring validation of well integrity prior to hydraulic fracturing in new or any existing wells;
  • Requirements to design and implement a casing and cementing program that follows best practices and meets performance standards to protect and isolate usable water (generally defined as those waters containing less than 10,000 parts per million of total dissolved solids). The Rule specifies that best practice includes cement return and pressure testing for surface casing, cement evaluation logs for intermediate and production casing, and remediation plans and cement evaluation logs for any surface casing that does not meet performance standards;
  • Requirements to monitor cementing operations during well construction and take remedial action if cementing is inadequate;
  • Disclosure of chemicals used in hydraulic fracturing to BLM through the FracFocus website within 30 days of completing the fracturing operations (similar to requirements imposed by several States already, including California). The rule provides limited disclosure exceptions for chemicals demonstrated to BLM, through affidavit, to be trade secrets;
  • Specific standards for interim storage of recovered waste fluids from hydraulic fracturing operations. These requirements include management of fluids in “rigid enclosed, covered, or netted and screened above-ground storage tanks” with case-by-case exceptions;
  • Measures to lower the risk of cross-well contamination by requiring companies to submit more detailed information on the geology, depth, and location of preexisting wells to allow for detailed assessment by BLM of site characteristics.
Operators with leases on Federal lands must comply both with the new BLM requirements and with any state operating requirements, including permitting and notice requirements to the extent they do not conflict with BLM regulations. The rule provides a variance option to states and tribes where equal or more protective regulations applicable to hydraulic fracturing have been adopted locally.

BLM has estimated that the cost of compliance with the new requirements imposed by the Rule will amount to less than one-fourth of 1 percent of the cost of drilling a new well.

The Rule does not adopt new enforcement or penalty requirements. In response to comments, BLM stated that these issues were outside the scope of the rulemaking and already addressed in existing regulations. Compliance with the rule, and enforcement for any violation of the new requirements, will be covered by existing regulations in 43 C.F.R. Subpart 3163. BLM’s remedies for an operator’s non-compliance with the new regulations are provided by the already existing 43 C.F.R. § 3163.1, and include written notices of violation, assessments, and the shut-down of operations. Repeated or continued non-compliance can result in civil penalties and possible lease cancellation pursuant to 43 C.F.R. § 3163.2. Finally, BLM notes in the rulemaking that criminal penalties may be sought for certain false statements made to the government in public land matters, whether sworn or unsworn, pursuant to 18 U.S.C. § 1001 and 43 U.S.C. § 1212.

This may be only the first iteration in the regulation of hydraulic fracturing on Federal lands, with BLM stating that it will evaluate the adequacy of the rulemaking seven years after the date of publication to ensure that the standards are adequately addressing emerging technological developments and providing acceptable protection for human health and the environment.

The final rule can be viewed here

- Tom Boer

For more information, contact J. Tom Boer at jtb@bcltlaw.com or (415) 228-5413.

Thursday, March 19, 2015

California Appellate Court Agrees with Defendants on Prop. 65 Exposure Averaging

In one of the most significant appellate decisions interpreting California’s Prop. 65, the California Court of Appeal on March 17 ruled that, for purposes of establishing the Prop. 65 “safe harbor” defense, exposure to a listed chemical, such as lead, may be determined by averaging exposures over time and averaging concentrations of the chemical over multiple lots. The First Appellate District in Environmental Law Foundation v. Beech-Nut Nutrition Corp. is the first appellate court to address the issue of averaging exposure under Prop. 65--an issue that had been a point of contention ever since Prop. 65 was first enacted over 25 years ago. In affirming the judgment of the Alameda County Superior Court, the Court of Appeal’s conclusion in Beech-Nut is a direct rejection of the position that has long been advocated by both the Attorney General and the private plaintiffs’ bar, contending that a single, one-time exposure to lead that exceeds the safe harbor threshold is enough to require a warning.

In a thoroughly reasoned statement of its decision, the trial court in 2013 found that the language of Prop. 65 and its regulations, as well as the statement of reasons published by the Office of Environmental Health Hazard Assessment’s (OEHHA) when that agency listed lead as a Prop. 65 chemical, all support a conclusion that averaging exposures over time and over multiple lots was permissible. The trial court’s decision was also supported by expert testimony and analysis introduced by the defendants, which the court found “far more persuasive” than that of the plaintiff. The Court of Appeal affirmed, reviewing the trial court’s ruling under a substantial evidence standard of review.

It remains to be seen whether the California Supreme Court will ultimately weigh in on this case. In addition, OEHHA has suggested that it may attempt to limit the effect of the court’s decision, and invoke its regulatory authority over the issue of determining exposure in a Prop. 65 “safe harbor” defense. What appears certain is that this issue is far from settled.

A copy of the Court of Appeal’s opinion is available here.

- Joshua Bloom and Samir Abdelnour

For more information, contact Joshua Bloom at (415) 228-5406 or jab@bcltlaw.com, or Samir Abdelnour at (415) 228-5443 or sja@bcltlaw.com.