New Draft Prop. 65 Warning Regulations: What Manufacturers and Suppliers Need to Know

On November 24, 2015, the Office of Environmental Health Hazard Assessment (“OEHHA”) issued proposed revisions to its January 15, 2015 draft Prop. 65 warning regulations. 27 CCR §§25600 et seq. The full text of the new draft regulations was published by the Office of Administrative Law on November 27.

OEHHA’s November draft proposes several changes to the January version, two of which stand out as significant.
 
1. Out With The “Dirty Dozen”

Existing regulations provide some guidance as to warning content, prescribing “safe-harbor” language designed to protect against Prop. 65 claims if used properly. They do not, however, require warnings to name any of the chemicals giving rise to the duty to warn (the “subject chemicals”). The January draft [§25602] changed that, specifying a list of 12 such chemicals that must be named if the warning is to achieve safe-harbor status. The November draft eliminated the list, but retained a truncated version of the chemical-naming requirement.

Under the new version [§25601(c)], safe harbor status is achieved if “one or more” of any of the subject chemicals is named in the warning. This is good news for those who sell products in California, as the November draft would eliminate the need to test for all 12 of the formerly listed chemicals to craft a warning that meets the chemical-naming requirement (which, by the way, does not apply to on-product warnings).

2. More Protection For Existing Inventory

The January draft [§25600(b)] provided a phase-in period of two years from the adoption of the new regulations. This was problematic because any products manufactured prior to adoption would have to be re-labeled if they were still on the shelves two years after adoption. The November draft [§25600(b)] fixed this problem, providing that products manufactured prior to adoption are protected indefinitely so long as their warnings comply with the prior (September 2008) regulations. Given that many products have shelf lives longer than two years, this change, if adopted, would avoid substantial – and wasteful – relabeling costs.

-- Brian Haughton and Julia Graeser

For more information, contact Brian Haughton at bsh@bcltlaw.com, (415) 228-5423, or Julia Graeser at jrg@bcltlaw.com, (415) 228-5481

New California Laws Will Ease Groundwater Right Battles, Yet Encourage More Litigation

On October 9, 2015 Governor Jerry Brown signed into law two bills aimed at making groundwater disputes easier and faster to resolve in court.

The new laws—companion bills AB 1390 (Alejo) and SB 226 (Pavley)—streamline California’s onerous groundwater adjudication process, which can drag on for decades. Such adjudications comprehensively establish groundwater right allocations for all users in a covered groundwater basin and, up to now, have been governed by common law principles. The new statutes focus primarily on procedures to speed up the groundwater adjudication process, but also ensure that courtroom adjudications do not interfere with California’s 2014 legislation promoting sustainable management of groundwater basins, known as the Sustainable Groundwater Management Act (“SGMA”).

There are at least 20 adjudicated basins in California, but the daunting, multi-year adjudication process  tends to discourage attempts to comprehensively establish groundwater rights. For example, the initial complaint in the Upper Los Angeles River Area adjudication was filed in 1955, but adjudication was not completed until 1979. Further, every affected groundwater right holder in a subject basin must receive notice, which results in huge numbers of named parties. The recently concluded Antelope Valley adjudication had over 70,000 parties.

With the potential for multi-decade litigation affecting thousands of parties, the adjudication process has not been used to its full potential. But with vastly increased groundwater pumping prompted by California’s historic drought, and a “wild west” chaos predominating in many of California’s groundwater aquifers, the new laws come at a key juncture. Building on SGMA, the new laws promise to provide further tools for effectively determining and managing groundwater resources throughout California. Once wielded, however, these powerful legal tools will have vast consequences in determining the scope of water rights across the State.

Key Changes to Lawsuits Determining Groundwater Rights

AB 1390 aims to streamline and speed up the judicial procedures for conducting comprehensive groundwater adjudications, targeting challenges related to providing notice, authorizing new agency intervention, phasing the litigation, setting disclosure deadlines, and providing injunctive power to the court to prevent a pumpers’ race to the bottom after the complaint is filed.

Specifically, AB 1390:

• Requires the plaintiff filing the complaint to also provide a draft notice and draft form answer at that time. The plaintiff then would need to send the notice to all tax assessor parcel numbers in the basin, so as to ensure all affected parties are provided with notice. The law deems such actions as sufficient to provide notice and establish jurisdiction over all affected parties.
  
• Authorizes groundwater sustainability agencies—the local agencies designated by SGMA as responsible for devising groundwater sustainability plans—to intervene in a comprehensive adjudication. This would ensure that even where such sustainability agencies do not hold water rights in the basin, they can still intervene in the litigation.
  
• Requires the court to convene an early case management conference aimed at speeding up the litigation, to address:  (1) identifying whether the basin boundaries should be adjusted, (2) appointing a special master, (3) scheduling a hearing on a preliminary injunction, (4) dividing the case into phases to resolve legal and factual issues, (5) limiting discovery to correspond to the phasing, (6) scheduling an early resolution of claims to prescriptive rights, and (7) forming classes of overlying groundwater rights holders to further speed adjudication.

• Mandates that all parties submit initial disclosures within six months of appearing in the action. In these disclosures—submitted under penalty of perjury—each party must identify the quantity of groundwater extracted from the basin for each of the previous 10 years, the location of each groundwater extraction well, and the use for which groundwater extracted has been applied.
  
• Authorizes the court to issue a preliminary injunction that could include a moratorium on new or increased groundwater extraction. This provision would help reduce the race to the pumps created by the filing of adjudication action.

Advancing SGMA Goals 

SB 226 adds provisions specific to groundwater basins that are undergoing a comprehensive adjudication and which are also subject to the SGMA. SGMA requires all groundwater basins designated as high- or medium-priority basins by the Department of Water Resources to have a groundwater sustainability plan in place by January 2022 (or 2020, if in a state of critical overdraft). Cal. Water Code § 10720.7(a).

SB 226 requires courts overseeing comprehensive groundwater adjudications to:

manage the proceedings in a manner that minimizes interference with the timely completion and implementation of a groundwater sustainability plan, avoid[ ] redundancy and unnecessary costs in the development of technical information and a physical solution, and [be] consistent with the attainment of sustainable groundwater management within the timeframes established by this part.

Cal. Water Code § 10737.2. In the context of adjudications, the legislation would also clarify how groundwater basin boundary adjustments should occur as well as how basins deemed “probationary” under SGMA would be covered by an adjudication.

This bill would also enable the California Attorney General to intervene in any adjudication action.

California Confronts the Drought Head-On

The new laws further demonstrate the California Legislature’s “all hands on deck” efforts to addressing the current water crisis. On the heels of authorizing $7.5 billion in Prop. 1 funding, the groundbreaking SGMA, the State Water Resources Control Board’s unprecedented curtailment notices to surface water rights holders, and recent developments in the courts, California continues the process of redefining the legal framework applicable to California’s vitally important groundwater resources.

-- Dave Metres

For more information, contact Dave Metres at dmm@bcltlaw.com or (415) 228-5488.

New California Groundwater Laws Portend More Litigation, But Faster Resolution

Last week, the California Legislature sent two important bills on groundwater to Governor Jerry Brown for signature. The bills promise to revamp California’s complicated, lengthy, and arduous judicial process for adjudicating rights to groundwater, and to make the adjudication process comport with 2014’s pathbreaking law governing California groundwater. But as the new laws would speed the judicial process to comprehensively establish all groundwater rights in particular basins, the streamlining also could prompt litigants to head to the courthouse more quickly.

The bills—AB 1390 (Alejo) and SB 226 (Pavley)—represent another concerted effort by California lawmakers to address groundwater issues. After ignoring California’s ever-diminishing groundwater resources for decades, the Legislature passed the Sustainable Groundwater Management Act (“SGMA”) in 2014, which endeavors to nurse California’s most severely impacted groundwater basins back to health. The new legislation promises to build on that effort, and to ease the multi-year—and often multi-decade—process of comprehensively adjudicating groundwater rights in court.

To confront the significant challenges in determining the groundwater rights for the thousands of users in each groundwater basin, AB 1390:

• streamlines the processes for providing notice to all affected parties,
• speeds up the timeline for these parties to identify their groundwater extractions,
• provides the courts ample new tools to streamline the adjudication process, and
• creates new judicial powers to enable prompt resolution without increasing the potential for overpumping generated by the filing of the lawsuit.

SB 226 adds new provisions to the SGMA that are aimed at ensuring that neither the adjudication process nor the efforts to develop and implement groundwater sustainability plans required by SGMA interfere with each other.

 

Together, the bills represent another important step in reducing the conflicts and easing the resolution of contentious battles over water rights. The California legislature—unlike in past droughts—has taken seriously the call to action this drought has presented, and has produced another law that promises to bring faster resolution to contentious courtroom fights over groundwater allocations.

 

If Governor Brown signs the bills, and all indications suggest he will, new courtroom battles over groundwater rights should be expected.

-- Dave Metres

For more information, contact Dave Metres at dmm@bcltlaw.com or (415) 228-5488.

“Not the Stuff of Science”: “Differential Etiology” Causation Opinions Fail Daubert in 7th Circuit Toxic Tort Case

The Seventh Circuit Court of Appeals has affirmed a district court’s grant of summary judgment in an environmental toxic tort case, holding that the testimony of all three of plaintiffs’ causation experts – James Dahlgren, M.D., Vera Byers, M.D., Ph.D, and Jill Ryer-Powder, Ph.D – was properly excluded as unreliable under the Daubert standard governing the admissibility of expert testimony.

In C.W. et al. v. Textron, Inc. (August 26, 2015; Court of Appeals Case No. 14-3448 (N.D. Ind.)), the plaintiffs were two minors whose parents filed tort claims on their behalf against Textron. While living near a Textron fastener manufacturing plant in Rochester, Indiana, the infant children experienced gastrointestinal, immunological, and neurological issues. The parents eventually learned that the groundwater well at their home was contaminated by vinyl chloride released from the Textron facility, at levels of five to nine parts per billion. The family moved out of the home and sued Textron, alleging that the company had exposed the children to vinyl chloride, which caused their illnesses and substantially increased their risk of cancer and other adverse health effects.

After four years of litigation, the district court granted in its entirety a motion in limine to exclude plaintiffs’ three expert witnesses and then granted summary judgment, finding that plaintiffs could not prove general or specific causation without the experts. The Court of Appeals affirmed, holding that the district court “properly adhered to the Daubert framework” and conducted an “exhaustive” review.

Dr. James Dahlgren testified that exposure to vinyl chloride can cause and did cause the children’s illnesses, and that it was highly likely that both children will develop cancer at some point in the future. The district court found that Dahlgren’s reliance on “differential etiology” (often mistakenly called “differential diagnosis”) failed to meet the Daubert standard, in part because Dahlgren “failed to connect the dots between the scientific studies that he analyzed and the opinions that he offered”: the studies that he relied upon failed to establish that vinyl chloride, at the dose and duration relevant to the case, could cause the problems that plaintiffs experienced or claimed they were likely to experience. The Court of Appeals agreed that Dahlgren’s methodology was unreliable, stating: “This approach is not the stuff of science.”

Dr. Vera Byers also testified that exposure to vinyl chloride – via contaminated drinking water, inhalation of vapors from bathing, and dermal contact – can cause and did cause the children’s gastrointestinal and immune-system problems. The district court similarly excluded her differential etiology testimony, finding the studies she relied on were not relevant, and there was no basis for “ruling in” vinyl chloride exposure as a possible cause of the medical issues. The Court of Appeals concurred, commenting: “Without the benefit of analogous studies and an acceptable method of extrapolation, Dr. Byers . . . is forced to take a leap of faith in pointing to vinyl chloride as having the capacity to cause the injuries (and risk of injury) to [plaintiffs]. The district court ably performed its gatekeeper role in shielding the jury from this leap.”

Dr. Jill Ryer-Powder testified similarly, relying on studies at much higher exposure levels than were present in the case. In forming her opinion on causation, Ryer-Powder also relied on the fact that the plaintiffs’ drinking water exceeded regulatory standards. As with Dr. Dahlgren and Dr. Byers, the district court found that she did not offer a reliable basis to support her opinion. The Court of Appeals held that the district court did not abuse its discretion in rejecting Ryer-Powder’s methodology, noting in part that exceedances of regulatory standards do not prove causation.

The Court of Appeals also:

• ruled that the district court properly rejected the experts’ methodology, to the extent they based their opinions on the timing of the plaintiffs’ injuries coinciding with their exposure to vinyl chloride (citing a prior Seventh Circuit opinion holding that the “mere existence of a temporal relationship” does not “show a sufficient causal relationship”); and 
• rejected plaintiffs’ claim that, because there are no studies available regarding the impact of vinyl chloride on children at the dose and duration in question, the experts’ testimony should have been admitted. The Court noted that computer-based models can extrapolate from animal data to human subjects, and from high doses to low doses, but plaintiffs’ experts did not mention or refer to this method of bridging the data gap.

Finally, the Court of Appeals affirmed the district court’s grant of summary judgment in the absence of any admissible expert causation evidence, but disagreed with that court’s categorical exclusion of  differential etiology as a method to establish general causation. The Court adopted the approach taken by the Second Circuit Court of Appeals in Ruggiero v. Warner-Lambert Co., 424 F.3d 249 (2005), recognizing that there may be instances where a rigorous use of differential etiology is sufficient to support an expert’s opinion on both general and specific causation.

-- Don Sobelman

For more information, contact Don Sobelman at (415) 228-5456 or des@bcltlaw.com 

Federal Judge Puts Freeze on EPA’s Clean Water Act Rulemaking: Preliminary Injunction Halts Implementation of 'Waters of U.S.' Rule

In May of this year the U.S. Environmental Protection Agency (“EPA”) and the U.S. Army Corps of Engineers (“Corps”) issued the much-anticipated Waters of the United States rule (the “Rule”). The Rule redefines and expands federal jurisdiction over waters of the United States under the federal Clean Water Act.

The intent of the Rule, according to the United States, is to provide greater clarity over the jurisdictional reach of the Clean Water Act following a string of Supreme Court decisions limiting the reach of federal jurisdiction. See, e.g., Solid Waste Agency of Northern Cook County (SWANCC) v. U.S. Army Corps of Engineers, 531 U.S. 159 (2001) and Rapanos v. United States, 547 U.S. 715 (2006). According to agriculture and industry groups, the Rule is an unprecedented expansion of federal authority that vastly increases the jurisdictional reach of the Clean Water Act, will have a widespread negative economic impact, and profoundly infringes on private property rights.

The Rule has been opposed in Congress and, via a July 28 letter, by officials in 31 states that have asked EPA and the Corps to delay implementation of the Rule. A number of states and business groups have already filed challenges to the rulemaking in federal district courts. For example, on July 10, 2015, the U.S. Chamber of Commerce, along with the National Federation of Independent Business, Portland Cement Association, State Chamber of Oklahoma and Tulsa Regional Chamber, filed a lawsuit challenging the rule in Oklahoma federal court. See Chamber of Commerce et al. v. EPA, Case No. 4:15-cv-00386 (D.Okla. July 10, 2015).

On August 10, 2015, North Dakota and 12 other states -- Alaska, Arizona, Arkansas, Colorado, Idaho, Missouri, Montana, Nebraska, Nevada, South Dakota, and Wyoming -- sought a preliminary injunction from the District of North Dakota to prevent implementation of the Rule. North Dakota, et al. v. United States Environmental Protection Agency, et al., Case No. 3:15-cv-00059 (D. N.D. June 29, 2015). The plaintiffs argued that a preliminary injunction was needed to maintain the status quo while the Rule’s legal failings were addressed by the federal courts.

On Thursday, August 27, Judge Ralph Erickson issued the requested preliminary injunction in an 18-page order that can be read here. In issuing the preliminary injunction, Judge Erickson found it more likely than not that the EPA and the Corps had overstepped their authority in promulgating the Rule and had failed to comply with aspects of the Administrative Procedure Act. In balancing the potential harm of issuing a preliminary injunction, the Court concluded:

On balance, the harms favor the [plaintiff] States. The risk of irreparable harm to the States is both imminent and likely. More importantly delaying the Rule will cause the Agencies no appreciable harm. Delaying implementation to allow a full and final resolution on the merits is in the best interests of the public.

Order at 15.

This preliminary injunction is sure to be appealed by the United States and signals the first of many legal salvos over the legitimacy of the Rule.

-- Tom Boer

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

CEQA Alert: Extensive Proposed Revisions to CEQA Guidelines Released for Public Comment

On August 11, 2015, the Governor’s Office of Planning and Research (“OPR”) released a preliminary discussion draft of comprehensive revisions to the CEQA Guidelines (“Discussion Draft”).   

Revisions to the CEQA Guidelines are usually piecemeal, and made in response to either specific legislation amending the CEQA statute or court decisions interpreting CEQA. However, in 2013, OPR broadly solicited suggestions from stakeholders as to what changes to the CEQA Guidelines should be made. The Discussion Draft resulted from this process.

The Discussion Draft proposes revisions to 25 aspects of CEQA, broken down into three categories:  “Efficiency Improvements” (seven revisions), “Substance Improvements” (two revisions), and “Technical Improvements” (16 revisions). However, the fact that only two of the proposed revisions fall under the heading of “Substance Improvements” is somewhat misleading, as virtually all of the “Efficiency Improvements” would also substantively alter the Guidelines, with ramifications for both the environmental review process and post-review CEQA litigation. These substantive changes address a number of areas, including:

• adoption and application of thresholds of significance;
• determinations as to whether an activity is within the scope of a program EIR;
• the contents of Guidelines Appendix G (Initial Study Environmental Checklist);
• the consequences of a court decision finding a violation of CEQA;
• analysis of energy impacts;
• analysis of water supply impacts;
• selection of the baseline conditions for impacts analysis;
• deferral of mitigation; and
• response to comments on a draft EIR.

While some of the proposed revisions merely attempt to harmonize the Guidelines with recent case law and legislative acts, other revisions go well beyond such considerations and will likely be controversial. Moreover, OPR has posed a number of questions for stakeholders in the Discussion Draft, which could lead to additional proposed revisions.

The Preliminary Draft is available here. Comments on the Draft Guidelines must be submitted to OPR by October 12, 2015.

- Don Sobelman and Kathryn Oehlschlager

For more information, contact Don Sobelman at (415) 228-5456 or des@bcltlaw.com, or Kathryn Oehlschlager at (415) 228-5458 or klo@bcltlaw.com.

CEQA Alert: CA Supreme Court Clarifies Duties of State Agencies in Funding Off-Site Mitigation

On August 3, the California Supreme Court released its second CEQA decision of 2015, addressing a key issue for state agencies undertaking projects that require off-site environmental mitigation. In City of San Diego v. Board of Trustees of the California State University (SC Case No. S199557) (“City of San Diego”), the Court clarified that a state agency may not reject as infeasible off-site mitigation via fair-share payment solely due to the lack of appropriations earmarked for that purpose by the State Legislature. In doing so, it affirmed the Court of Appeal’s decision directing the Board of Trustees of the California State University (“CSU Board”) to vacate its certification of an EIR for a major expansion of the San Diego State University (“SDSU”).

In 2007, the CSU Board prepared an environmental impact report and campus master plan revision (“EIR”) proposing several major construction projects on the SDSU campus (“the project”). The EIR identified significant cumulative traffic impacts at several off-campus locations in San Diego, and it estimated the project’s average “fair share” contribution to mitigate the increased congestion at 12 percent. However, the CSU Board stated that it could not commit to paying that fair share, because it was not certain whether the California Legislature would appropriate funding specifically for that purpose. For this reason, the CSU Board found that mitigation of the traffic impacts via fair-share payment was infeasible, and that the traffic impacts were therefore significant and unavoidable. The CSU Board certified the EIR based on a statement of overriding considerations.

In a unanimous opinion penned by Justice Werdegar, the Supreme Court revisited the Court’s decision in another case involving the CSU Board’s approval of a campus expansion project, City of Marina v. Board of Trustees of California State University (2006) 39 Cal.4th 341 (“Marina”). In Marina, which was also authored by Justice Werdegar, the Court held that the CSU Board’s duty to mitigate impacts extended beyond the boundaries of the campus, and that if it could not adequately mitigate those impacts by performing acts on the campus, “then to pay a third party . . . to perform the necessary acts off campus may well represent a feasible alternative.” However, the Court also noted that “[ ] a state agency’s power to mitigate its project’s effects through voluntary mitigation payments is ultimately subject to legislative control; if the Legislature does not appropriate the money, the power does not exist.” 

In the instant case, the CSU Board relied on the italicized language above in determining that the uncertainty of earmarked appropriations by the Legislature rendered mitigation by fair-share payment infeasible. The Supreme Court held that, in doing so, the CSU Board had erroneously interpreted Marina, for a number of reasons:

1. The italicized language is “dictum” that appeared in a paragraph in the decision that “imagines possible limitations on our holding that the Board shared with other agencies the responsibility to mitigate the off-site environmental effects of its project.”
2. The Marina dictum “is simply an overstatement,” as a public agency “has access to all of its discretionary powers and not just the power to spend appropriations.” Moreover, in the case of CSU, the agency has some discretion over use of general support appropriations for capital projects and has access to non-state funds.
3. Neither CEQA nor any other decision interpreting the statute suggests that mitigation costs for a project funded by the Legislature cannot be included in the project’s budget and paid for with funds appropriated for the project.
4. No provision of CEQA “conditions the duty of a state agency to mitigate its projects’ environmental effects on the Legislature’s grant of an earmarked appropriation.” Moreover, the Legislature has expressly subjected the CSU Board’s decisions on campus master plans to CEQA, including the requirement for mitigation of environmental impacts.
5. CEQA draws no distinction between on-site and off-site environmental impacts. Public agencies are required to mitigate or avoid significant effects of a project on the “environment,” which is defined as “the physical conditions which exist within the area which will be affected by a proposed project.” If on-site mitigation measures can be funded through the project budget without an earmarked appropriation (as the CSU Board had determined in the EIR), “then so too can off-site mitigation measures.”

In addition, the Court noted that “unreasonable consequences” would follow from the CSU Board’s interpretation of Marina, and CEQA’s “fundamental statutory directive” would be impaired. Finally, the Court rejected three new arguments presented by the CSU Board, finding that Education Code sections 67504 and 66202.5 and Government Code section 13332.15 did not support the Board’s determination.

Overall, the City of San Diego decision provides welcome clarity on an important and recurring issue of CEQA interpretation that the Court itself had created with the Marina decision.

-- Don Sobelman

For more information, contact Don Sobelman at (415) 228-5456 or des@bcltlaw.com.

State Water Board Extends Storm Water Permit Deadline to Aug. 14

On Wednesday, July 1, the California State Water Resources Control Board (SWRCB) announced it would extend the deadline for enrolling under the new Industrial General Permit (IGP) for Storm Water Discharges (Permit No. 2014-0057-DWQ) until close of business on Friday, August 14, 2015. The SWRCB also pushed back the deadline for submittal of 2014-15 annual storm water reports under the now-expired 1997 IGP (Permit No. 97-03-DWQ) to August 14.

The SWRCB blamed “ongoing technical difficulties” associated with users attempting to submit annual reports and permit registration documents to its online database, known as SMARTS (Storm Water Multiple Application and Report Tracking System).

Despite the failure of SMARTS to accommodate the large number of users seeking to comply with the new IGP, the SWRCB nevertheless indicated that “[w]hile technical issues are being resolved, the General Permit is in effect.” Draft Order 2015-XXXX-EXEC Amending Order 2014-0057-DWQ (Hearing date August 4, 2015). Thus, entities subject to the new IGP will need to ensure they are in compliance with the substantive requirements of the 2014 permit and maintain all necessary documents, while they wait to access SMARTS for registration.

Barg Coffin attorneys have previously analyzed the key changes and requirements of the new IGP here, here, and here.

--Don Sobelman and Dave Metres

For more information, contact Don Sobelman at (415) 228-5456 or des@bcltlaw.com, or Dave Metres as (415) 228-5488 or dmm@bcltlaw.com.

Supreme Court Overturns EPA Limits on Power Plants

On June 29, the United States Supreme Court nixed the United States Environmental Protection Agency’s 2012 Mercury and Air Toxics Standard, limiting emissions of mercury and other pollutants from power plants. The challengers argued that the $9.6 billion cost of complying with the standard outweighed the benefit of its application, and that EPA impermissibly failed to consider cost in deciding whether to regulate toxic emissions from power plants.

The Supreme Court held that EPA abused its discretion by ignoring cost, even under the deferential standard established in Chevron USA Inc. v. Natural Resources Defense Council, Inc. The Court held that in directing EPA to regulate power plants if it “finds such regulation is appropriate and necessary,” Section 112 of the Clean Air Act requires “at least some attention to cost.” Writing for the majority, Justice Scalia said, “One would not say that it is even rational, never mind ‘appropriate,’ to impose billions of dollars in economic costs in return for a few dollars in health or environmental benefits.”

EPA argued that it is not required to consider cost in the initial decision regarding whether to regulate power plants because it can consider cost when deciding on the extent of regulation. The Court rejected this argument, finding that “[c]ost may become relevant again at a later stage of the regulatory process, but that possibility does not establish its irrelevance at this stage.” The majority found that cost must be considered, but went on to say that it is within the agency’s discretion to consider how to evaluate costs, and even what constitutes a “cost.” The Court stated that cost “includes more than the expense of complying with regulations; any disadvantage could be termed a cost.”

--Kathryn Oehlschlager

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

Irrigation District Sues, Says State Board Lacks Jurisdiction to Curtail Senior Water Rights

On June 26, the Byron-Bethany Irrigation District (BBID) filed a petition for writ of mandate in Contra Costa County Superior Court requesting that the Court set aside the State Water Resources Control Board’s June 12, 2015 “notice of curtailment,” requiring hundreds of senior water rights-holders to cease diverting water from the Sacramento-San Joaquin Delta.

The BBID website states that BBID is “ a multi-county special district serving parts of Alameda, Contra Costa, and San Joaquin Counties. The District serves a total area of 47 miles and 30,000 acres.” BBID’s service area includes the community of Mountain House, which relies exclusively on BBID for its water supply.

The Petition alleges that the State Board lacks jurisdiction to curtail pre-1914 water rights, that the curtailment notice violates the California Constitution with regard to beneficial use of water, and that BBID was denied constitutional due process. 

“Enough is enough,” said BBID Board President Russell Kagehiro in the District’s press release. He went on to refer to the State Board’s action as “irresponsible and unnecessary.”

Meanwhile, also on June 26, the State Board issued a second curtailment notice to senior rights-holders, including the City and County of San Francisco.

--Kathryn Oehlschlager

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

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.

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.

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.

 

- Rick Coffin, Marc Zeppetello, and Sherry Jackman

 

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.

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.

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.

DTSC Invites Public Comments on Proposed Supplemental Environmental Projects Policy

This month, the California Department of Toxic Substances Control (“DTSC”) issued a Public Notice proposing a Supplemental Environmental Projects (“SEP”) Policy (“Policy”). DTSC is seeking public comment on the Policy through April 16, 2015. The final Policy will provide an option to perform a SEP in exchange for a reduction in the cash penalty paid to DTSC in response to environmental enforcement actions and, therefore, will be relevant to any party negotiating a settlement with DTSC in the future.

The Policy proposes an official framework for the incorporation of SEPs into administrative and civil settlements with DTSC. The Policy’s proposed SEP definition is virtually identical to the SEP definition contained within the U.S. EPA’s Supplemental Environmental Projects Policy issued in 1998 (“EPA Policy”), which is referenced by DTSC as one of several foundational documents supporting the development of the Policy. The DTSC Policy, however, departs from the EPA Policy in several key respects, including the maximum penalty deduction credited to a defendant for agreeing to implement a SEP (as described in greater detail below).

The Policy provides the following definitions and associated key terms:

• A “Supplemental Environmental Project” means an environmentally beneficial project that a defendant/respondent agrees to undertake or fund in settlement of an enforcement action, which the defendant/respondent is not otherwise legally required to perform. . . .
• “Environmentally beneficial” means a SEP must improve, protect, or reduce risks to public health or the environment at large. While in some cases a SEP may provide an alleged defendant/respondent with certain benefits, there must be no doubt that the project primarily benefits public health and/or the environment.
• “In settlement of an enforcement action” means: (1) DTSC has the opportunity to shape the scope of the project before it is implemented; and (2) the project is not commenced until after DTSC has identified a violation(s), e.g., issued a notice of violation, administrative order, or complaint. Expenditures for a SEP may, in effect, be substituted in part for a penalty as part of a settlement.
• “Not otherwise legally required to perform” means the SEP is not required by any federal, state, or local law or regulation or previous administrative or judicial order.

In the Policy, DTSC proposes guidance on the prioritization and categorization of SEPs:

• Environmental justice is listed as a priority under the Policy. DTSC will prioritize the use of SEPs that benefit a community in which potential or actual harm from the alleged violations may have occurred. A community identified within the top 25% highest scoring census tracts of the most current version of CalEnviroScreen will receive the highest priority for SEPs.
• Categories of acceptable SEPs include those relating to Public Health, Pollution Prevention, Pollution or Hazardous Waste Reduction, Environmental Restoration and Protection, Assessment and Audits, Environmental Compliance Promotion, Enforcement Enhancement, and Emergency Planning and Preparedness. Seven of these eight categories are identical to those contained within the federal EPA Policy; the sole departure is the inclusion of the “Enforcement Enhancement” category which DTSC defines as a SEP providing for the training of enforcement and compliance staff or paying for government acquisition of surveillance equipment. Under the Policy, DTSC will also consider SEPs that do not fit into the listed categories, provided they are consistent with all other provisions of the Policy.
• Examples of unacceptable SEPs provided by DTSC include general educational or public environmental awareness projects that lack a nexus to the community or environmental impacts identified through the enforcement action, and projects which, though beneficial to a community, are unrelated to environmental protection.

Provided that a proposed SEP is approved by DTSC in conjunction with a settlement, the Policy states that DTSC will allow a reduction of up to 25% of the monetary settlement that would otherwise be paid as a penalty (exclusive of any enforcement costs recovered by DTSC). In contrast, the existing EPA Policy permits a potentially greater credit for the performance of a SEP, as long as a defendant satisfies the minimum penalty requirement (the minimum penalty under the EPA Policy must be the greater of (i) the economic benefit of noncompliance plus 10% of the gravity calculation, or (ii) 25% of the gravity calculation). To illustrate, if the initial penalty for settlement of an alleged violation is $100,000, but the settling party wished to achieve the maximum deduction available via performance of a SEP:

• Under DTSC’s Policy, an acceptable SEP could provide a credit of up $25,000. In other words, a defendant could perform a SEP valued at up to $25,000 and pay a penalty to DTSC of $75,000. Thus, the total cost to the defendant for the SEP and the penalty would be $100,000.
• Under the EPA Policy a greater SEP credit would likely be available, but the calculation is more complex and depends upon the relative economic benefit and gravity components of the assessed penalty and an evaluation of what percent of the SEP cost EPA will allow to be credited to a settling party. Assuming that the penalty consisted of a $25,000 economic benefit component and a $75,000 gravity component, the “minimum penalty” that must be paid to EPA would be $32,500. Thus, performance of a SEP could provide a credit offsetting the penalty paid to EPA in an amount up to $67,500 ($100,000 minus $32,500). Under the EPA Policy, however, EPA does not provide dollar-for-dollar credit for the cost of a SEP and instead allows a credit for a maximum of 80% of the cost of a SEP. As a result, the actual penalty paid to EPA would have to be in excess of $32,500 under this example (if, e.g., the settling party spent only $67,500 on the SEP), or the cost of the SEP would have to be in excess of $67,500 to provide the maximum available reduction in the penalty as a result of the performance of a SEP.

In the Policy, DTSC provides guidance on how SEPs must be implemented following approval of a settlement:

• SEPs may be performed in three different ways: (1) directly by the defendant; (2) by a payment made by the defendant directly to CalEPA’s 14300 Environmental Enforcement and Training Account Program or CalEPA’s Environmental Justice Small Grant Program; and/or (3) by a third party using funds provided by the defendant/respondent.  Under the third option, DTSC may approve a non-governmental organization or nonprofit to oversee the completion of the SEP provided that, among other things, administrative expenses do not exceed 10% of the cost of the SEP.
• The Policy provides that orders or judgments authorizing a SEP must require periodic reporting to DTSC, include a schedule for project implementation, contain or reference performance standards, and provide for payment of DTSC oversight costs.
• The Policy contains a number of provisions relating to project payment, tracking, reporting and oversight. The provisions require submission of a SEP completion report to DTSC declaring the completion of the SEP and addressing how the expected outcome or performance standards of the project were met.

DTSC has invited the public to submit comments on the draft Policy through April 16, 2015. To encourage public participation, DTSC will be hosting a series of public workshops on March 18, 19, and 26 at locations throughout California.

--Tom Boer and Sherry Jackman

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

CEQA Alert UPDATE: Petitions for Review Filed in Greenhouse Gas and ICCTA Preemption Cases

As previously reported, two decisions by California’s Fourth Appellate District in late 2014 highlighted CEQA compliance challenges facing local governments charged with implementing state and local greenhouse gas emissions reduction mandates.

Update: Petitions for review with the California Supreme Court were subsequently filed in both cases. On March 11, 2015, the California Supreme Court granted the petition for review filed by the San Diego Association of Governments and the San Diego Association of Governments Board of Directors in Cleveland National Forest Foundation v. San Diego Association of Governments. The issue to be briefed and argued is limited to the following question: Must the environmental impact report for a regional transportation plan include an analysis of the plan's consistency with the greenhouse gas emission reduction goals reflected in Executive Order No. S-3-05 to comply with the California Environmental Quality Act (Pub. Resources Code, § 21000 et seq.)? A petition for review in Sierra Club v. County of San Diego is pending, with the time allotted for the Supreme Court to grant or deny review extended until April 3, 2015.

We also previously reported on the Surface Transportation Board’s (STB’s) December 12, 2014 decision in which it found that the Interstate Commerce Commission Termination Act categorically preempts CEQA with respect to the 114-mile passenger rail line that the Authority is constructing between Fresno and Bakersfield as part of its High-Speed Train System.

Update:  On December 29 and December 30, 2014, two petitions for reconsideration of the STB’s December 12, 2014 decision were submitted to the STB - one by a California resident and the other by a group that included Kern and King Counties, the City of Shafter, and several organizations. The STB has not yet ruled on those petitions.

On February 9, 2015, two separate petitions for review of the STB’s December 12, 2014 decision were filed in the Ninth Circuit and D.C. Circuit Courts of Appeal. The D.C. Circuit challenge was filed by the California nonprofit corporation, Dignity Health, one of the parties that filed the December 29, 2014 petition for reconsideration with the STB. The Ninth Circuit challenge was filed by a subset of the other parties to the December 29, 2014 petition for review, including Kings County, Kern County, and several nonprofit corporations. The STB filed motions to dismiss for lack of jurisdiction in both of the federal court actions in early March. The STB argued that the federal courts lack jurisdiction because the STB’s decision is not a final order as it has not yet ruled on the petitions for reconsideration filed at the administrative level.

-- Don Sobelman and Nicole Martin

For more information, contact Don Sobelman at des@bcltlaw.com or (415) 228-5445, or Nicole Martin at nmm@bcltlaw.com or (415) 228-5435.

California’s Fracking Preemption Battle Moves Forward in San Benito County

Oil company Citadel Exploration, Inc. has reportedly filed a lawsuit against San Benito County, arguing that the County’s voter-sponsored ban on various types of well stimulation—often referred to generally as hydraulic fracturing or “fracking”—is preempted by state law.

Measure J, which was approved by San Benito County voters in November of last year, purports to create a county-wide ban on hydraulic fracturing and other types of secondary and tertiary oil recovery methods. Citadel had reportedly planned to develop up to 1,000 wells in San Benito County that would have employed cyclic steaming, one of the practices subject to the ban.

This fight has been a long time coming. As grass-roots efforts to ban fracking have increased over the last few years, industry representatives have consistently maintained that (1) regulation of “down-hole” activities is explicitly under the jurisdiction of the Department of Oil, Gas, and Geothermal Resources (DOGGR), and therefore cannot be regulated at the local level; and (2) local bans on fracking are preempted by the comprehensive state regulatory scheme prescribed by SB 4, passed in 2013. To that end, Citadel’s complaint against the County reportedly contends that “regulation of down-hole operations is exclusively a State function and that the defendant lacks the power and authority to regulate down-hole operations.”

In November, Citadel filed a $1.2 billion administrative claim against the County, a prerequisite to filing a lawsuit, covered here. Previous coverage of SB 4 is available here and here.

--Kathryn Oehlschlager

UPDATE - April 7, 2015: 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 information, contact Kathryn Oehlschlager at klo@bcltlaw.com or (415) 228-5458.

CEQA Alert: California Supreme Court Issues Long-Awaited Guidance on the “Unusual Circumstances” Exception to CEQA’s Categorical Exemptions

In its March 2 decision in Berkeley Hillside Preservation v. City of Berkeley (SC Case No. S201116), the California Supreme Court provides critical guidance to CEQA lead agencies and practitioners regarding the proper application of the so-called “unusual circumstances” exception to CEQA’s categorical exemptions. This issue had previously generated a large number of Court of Appeal decisions over the course of several decades, resulting in a conflicting and confusing body of law. The Supreme Court’s decision finally puts the issue to rest.

The case involved a challenge to the City of Berkeley’s approval of a permit application to build a 6,478-square-foot house and 3,394-square-foot, 10-car garage. In approving the application, the City relied on two of CEQA’s categorical exemptions: (1) A “Class 3” Categorical Exemption, which includes “construction and location of limited numbers of new, small facilities or structures,” including “[o]ne single-family residence, or a second dwelling unit in a residential zone” (14 Cal. Code Regs. § 15303); and (2) “Class 32” which “consists of projects characterized as in-fill development” meeting certain requirements specified in the Guidelines (14 Cal. Code Regs. § 15332). The City also determined that the “unusual circumstances exception” in CEQA Guidelines Section 15300.2(c) did not apply. That exception provides that “[a] categorical exemption shall not be used for an activity where there is a reasonable possibility that the activity will have a significant effect on the environment due to unusual circumstances.”

The Court of Appeal for the First Appellate District disagreed and invalidated the City’s approval. In making this ruling, the Court held that the fact that a proposed activity may have a significant effect on the environment is, in and of itself, an “unusual circumstance” within the meaning of Section 15300.2(c), such that the lead agency may not rely on a categorical exemption for that activity. The Court of Appeal further determined that the standard of review applicable to the determination of whether the “unusual circumstances exception” applies is whether the record contains substantial evidence of a fair argument that the proposed project may have a significant impact on the environment.

The California Supreme Court disagreed with the Court of Appeal on both counts. The Court held that a potentially significant effect is not enough on its own to trigger the “unusual circumstances exception”:

In listing a class of projects as exempt, the Secretary has determined that the environmental changes typically associated with projects in that class are not significant effects within the meaning of CEQA, even though an argument might be made that they are potentially significant. The plain language of Guidelines section 15300.2, subdivision (c), requires that a potentially significant effect must be “due to unusual circumstances” for the exception to apply. The requirement of unusual circumstances recognizes and gives effect to the Secretary’s general finding that projects in the exempt class typically do not have significant impacts.

Furthermore, the Court held that a party challenging a lead agency’s determination that a categorical exemption applies bears the burden of producing evidence supporting the applicability of the “unusual circumstances exception.” Although the Court notes that “to establish the unusual circumstances exception, it is not enough for a challenger merely to provide substantial evidence that the project may have a significant effect on the environment,” it also concludes that “evidence that the project will have a significant effect does tend to prove that some circumstance of the project is unusual” (emphasis in original).

According to the Supreme Court, an “unusual circumstance,” within the meaning of Section 15300.2(c), may be established “without evidence of an environmental effect, by showing that the project has some feature that distinguishes it from others in the exempt class, such as its size or location. In such a case, to render the exception applicable, the party need only show a reasonable possibility of a significant effect due to that unusual circumstance.” Alternatively, an “unusual circumstance” may be established “with evidence that the project will have a significant environmental effect. That evidence, if convincing, necessarily also establishes ‘a reasonable possibility that the activity will have a significant effect on the environment due to unusual circumstances.’”

With respect to the standard of review, the Court held that Public Resources Code Section 21168.5 applies, such that reversal of the City’s permitting action is appropriate only if (a) the City, in finding the proposed project categorically exempt, did not proceed in a manner required by law, or (b) substantial evidence fails to support that finding. Specifically, the Court adopted the following bifurcated approach to the standard of review:

The determination as to whether there are “unusual circumstances” [ ] is reviewed under section 21168.5’s substantial evidence prong. However, an agency’s finding as to whether unusual circumstances give rise to “a reasonable possibility that the activity will have a significant effect on the environment” [ ] is reviewed to determine whether the agency, in applying the fair argument standard, “proceeded in [the] manner required by law.”
…
Accordingly, when there are “unusual circumstances,” it is appropriate for agencies to apply the fair argument standard in determining whether “there is a reasonable possibility of a significant effect on the environment due to unusual circumstances.” (Guidelines, §15300.2, subd. (c).)  As to this question, the reviewing court’s function “is to determine whether substantial evidence support[s] the agency’s conclusion as to whether the prescribed ‘fair argument’ could be made.”

The Court remanded to the Court of Appeal to apply the principles summarized above and provided the following additional guidance:  (1) a lead agency has the discretion to consider conditions in the vicinity or particular neighborhood of the proposed project when evaluating whether environmental effects are “unusual or typical”; and (2) a finding of environmental impacts must be based on the proposed project as actually approved and not based on unapproved activities that opponents assert will be necessary because the project, as proposed, cannot be built.

Justice Chin wrote the majority opinion, in which Justices Cantil-Sakauye, Corrigan, Baxter (retired, sitting by assignment), and Boren (sitting by assignment) concurred. Justice Liu penned a concurring opinion, joined by Justice Werdegar, that essentially rejected the majority’s view regarding the proper application of the “unusual circumstances exception.”

-- Don Sobelman and Nicole Martin

For more information, contact Don Sobelman at des@bcltlaw.com or (415) 228-5456, or Nicole Martin at nmm@bcltlaw.com, or (415) 228-5435.