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.