State Water Board to Adopt Revised Industrial Storm Water Permit on April 1, 2014

The California State Water Resources Control Board (State Board) recently notified the public that it will consider for adoption the final draft of the general NPDES permit that regulates storm water discharges associated with industrial activity.  The State Board will hold a public hearing on adoption of the permit at its meeting on April 1, 2014 at 9:00 a.m. at the Cal/EPA headquarters in Sacramento.

The State Board is soliciting comments by the public regarding revisions that have been made to the draft permit since July 19, 2013.  Those revisions are mostly minor, but importantly include a change to the effective date of the new permit, moving it back to July 1, 2015, from the previously proposed effective date of January 1, 2015.  Written comments must be submitted to the State Board by Tuesday, March 4 at 12:00 noon.  Oral comments may be made at the April 1 hearing.

As previously discussed here and here, the State Board’s proposed general permit would impose a new set of permitting requirements for industrial storm water discharges and would expand the scope of the program to cover new categories of industrial facilities.  With storm water discharges continuing to be the most active area of citizen enforcement under the Clean Water Act, California industrial facilities should review these proposed changes and confirm with counsel that they will be ready to obtain coverage under the new permit in 2015.

-- Don Sobelman and Dave Metres

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

Public Statements Made In Wake Of Environmental Disaster May Give Rise To Shareholder Securities Claims

When speaking on environmental issues affecting publicly-traded corporations, corporate officers, directors and management should be mindful of potential exposure to liability under the securities laws.  After two oil spills in less than six months in Prudhoe Bay, Alaska, oil and gas company BP faces claims not only related to the environmental effects of the spills, but also securities claims from its shareholders. 

On February 13, 2014, the Ninth Circuit Court of Appeals, in Reese v. Malone, Case No. 12-35260 (9th Cir., Feb. 13, 2014), reversed, in part, the dismissal of a securities class action brought by BP shareholders claiming investment losses after oil was discovered to be leaking from two separate pipelines in Prudhoe Bay in 2006.  After the second spill, BP temporarily shut down operations in the region, and BP’s share price decreased by four percent.

The Court found the plaintiffs adequately pled that BP knowingly, or with deliberate recklessness, made false and misleading statements actionable under Rule 10b-5 and various sections of the Securities Exchange Act of 1934.  The statements at issue regarded the condition, maintenance and monitoring of three Prudhoe Bay pipelines before and after the first spill, which occurred in March 2006.  Specifically, the Court considered four statements made by officers of BP and its wholly-owned subsidiary, BP-Alaska, and one statement appearing in BP’s 2005 Annual Report.

Approximately two weeks after the first spill, BP-Alaska Senior Vice President Maureen Johnson told the Associated Press (“AP”) that corrosion that ultimately caused the first spill was observed in a 2005 inspection, “but appeared to be occurring at a ‘low manageable corrosion rate.’”  Johnson also stated that the “highly corrosive conditions” leading to the first spill were “unique to that line,” and that similar problems had not been found in other pipelines in Prudhoe Bay.  Then in May 2006, Johnson told an oil and gas trade publication that no other oil transit line in the region had “the same combination of factors” as the line where the first leak occurred.

The Court rejected BP’s arguments that Johnson’s statements were not misleading, but rather merely incomplete or preliminary.  In so ruling, the Court noted BP’s own inspection and investigation data from before and after the first spill, which contradicted Johnson’s statements regarding the rate and presence of corrosion.  The Court also disagreed with the district court’s finding that the plaintiffs failed to adequately allege Johnson’s statements were made with the requisite knowledge—or scienter—to be actionable under the securities laws.  The Court found that given Johnson’s position as the head of the BP unit responsible for the spill, her role in communicating with the press regarding the condition of the pipelines, and the fact that a regulatory Corrective Action Order (“CAO”) discussing the similarities between the Prudhoe Bay pipelines was addressed directly to her, it would be “absurd” to believe she did not have knowledge of information contradicting her statements.

The Court did affirm the district court’s dismissal as to the class action claims based on BP CEO John Browne’s statement in April 2006 that the first spill occurred “in spite of the fact that [BP has] both world class corrosion monitoring and leak detection systems, both being applied within regulations set by the Alaskan authorities.”  The Court agreed with the district court that Browne’s statement was false, but that plaintiffs had not alleged facts sufficient to create an inference of scienter, based on the timing of the statement, which was made before the BP Board received a detailed update about the first oil spill.

However, the Court disagreed with the district court regarding whether plaintiffs had adequately pled their securities claims based on a statement appearing in BP’s 2005 Annual Report.  The Annual Report, issued June 30, 2006, stated: “Management believes that the Group’s activities are in compliance in all material respects with applicable environmental laws and regulations.”  The Court found that the complaint cited evidence of numerous alleged and confirmed violations of environmental laws and regulations, such that the plaintiffs had adequately pled the falsity of the statement.  As to scienter, the Court concluded it would be “absurd” for BP management to be unaware of the significant compliance issues, in light of the magnitude of the violations alleged and confirmed, the public attention surrounding the spills, and contemporaneous documents demonstrating management’s awareness of non-compliance with the CAO.  Moreover, while acknowledging that the context of the statement alerted investors about risks of adverse effects on the company from potential future compliance issues, the Court also found that BP attempted to downplay its existing non-compliance and emphasize unpredictable risks associated with the industry at large. 

Applying a “holistic” analysis, the Court determined that plaintiffs’ allegations against BP went beyond “simple corporate mismanagement,” and at a minimum compelled an inference of deliberate recklessness as to the false or misleading nature of the statements at issue.  The parties now return to the district court to litigate the merits of the plaintiffs’ claims against BP.

--Samir J. Abdelnour

For additional information, Samir Abdelnour can be reached at (415) 228-5443 or sja@bcltlaw.com.

General Statements About Future Expansion Do Not Trigger NEPA “Cumulative Impact” Analysis Requirement For CWA Section 404 Permit

 In a ruling that stands to benefit project proponents, the Ninth Circuit Court of Appeals, in Jones v. National Marine Fisheries Service,  Case No. 11-35954 (9th Cir., Dec. 20, 2013), found that the Army Corps of Engineers was not required to consider the cumulative future impacts of a mining project based on the mining company’s general statements about wanting to widen the scope of its mining activities in the future.  Judge Milan Smith authored the unanimous decision, wherein the panel affirmed the district court’s summary judgment in favor of the Army Corps of Engineers in an action challenging the Corps’ issuance of a Section 404 permit under the Clean Water Act for a project to mine mineral sands near Coos Bay, Oregon.

The plaintiffs argued that the mining company’s general statements that it intended to expand its mining operations along a 50-mile stretch of the Oregon coast, as well as the Corps’ consideration of three alternative sites analyzed in the Environmental Assessment as possible future projects, required the Corps to analyze the cumulative impacts of the permitted mining project under NEPA’s implementing regulations. 

The Court disagreed, concluding that the mining company’s stated desires, which included a statement that it intended to mine along the Oregon coast “from Cape Arago to Port Orford,” did not give specific information as to the number, scope or location of any future projects. 

The Court also found that the three alternative sites analyzed in the EA faced significant hurdles to development.  Relying on its prior decisions in Lands Council v. Powell, 395 F.3d 1019 (9th Cir. 2005), Environmental Protection Information Center v. United States Forest Service, 451 F.3d 1005 (9th Cir. 2006), and Northern Plains Resource Council, Inc. v. Surface Transportation Board, 668 F.3d 1067 (9th Cir. 2011), the Court held that the mining company’s intended future activities were speculative and not reasonably foreseeable, and therefore, cumulative impact analysis under NEPA was not required.

The Court also found that the Corps adequately examined the risks associated with potential hexavalent chromium generation from the proposed mining project and conducted an adequate “alternatives analysis” prior to issuing the Section 404 permit.

-- Samir Abdelnour

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

EPA Calls for New “Completion Strategies” at Contaminated Groundwater Sites

In October 2013, the U.S. Environmental Protection Agency issued its draft “Groundwater Remedy Completion Strategy – Moving Forward with Completion in Mind,” which would establish a recommended strategy for an adaptive management-style approach to managing contaminated groundwater sites.  The strategy calls for rigorous data assessment of the performance of groundwater cleanup actions to achieve remedial action objectives (RAOs), and clarifies that RAOs and cleanup goals should be reevaluated if impediments prevent achieving those objectives. 

Buried in this regulatory jargon is one significant impact of the Completion Strategy – this document confirms EPA’s recognition that some groundwater sites present problems so intractable that RAOs and cleanup levels are not likely to be achieved in any reasonable timeframe. 

Although EPA clarifies that the Completion Strategy relies on–but does not alter–existing law and guidance, the document recommends that a remedy completion strategy be completed for all sites with groundwater remedies.  A completion strategy is “a recommended site-specific course of action(s) and decision making process(es) to achieve groundwater RAOs and associated cleanup levels using an updated conceptual site model, performance metrics and data derived from site-specific remedy evaluations.” 

The Completion Strategy lays out an adaptive management-style approach to evaluating remedy performance that proceeds through the following steps:

• Understand site conditions, including timeframe estimated to achieve cleanup;
• Design site-specific remedy evaluations, including endogenous and exogenous factors affecting remedy achievement;
• Develop performance metrics–such as remedy operation metrics, progress metrics, and attainment metrics–and collect monitoring data;
• Conduct remedy evaluations, including whether and when the remedy will achieve RAOs and cleanup levels; and
• Make management decisions that feed these data points back into remedy design, potentially through an Explanation of Significant Differences (ESD) or a Record of Decision (ROD) Amendment.

The Completion Strategy’s data-centric approach reflects a current vogue in performance-based systems in environmental regulation.  By relying on augmented data feedback, the use of completion strategies may lead to more honest and sober reflection on whether remedial action objectives can be achieved for sites with complex groundwater contamination.  As a result, Superfund sites with intractable groundwater contamination problems may begin to find EPA to be more receptive to reevaluating RAOs based on intractable obstacles to remedy completion.

The comment period closed on December 20, 2013, and a final draft is expected in early 2014.  The draft Completion Strategy, supporting fact sheet, letter to “interested parties,” and a frequently asked questions document are all available here. 

--Dave Metres

For additional information, Dave Metres can be reached at dmm@bcltlaw.com or (415) 228-5488.

Agencies Send OMB Draft Regulations Defining Clean Water Act Jurisdiction

After years of starts and stops, the U.S. Environmental Protection Agency and U.S. Army Corps of Engineers have drafted a proposed regulation that will significantly affect which waters are subject to regulation under the Clean Water Act. 

Following 2001 and 2006 U.S. Supreme Court rulings addressing which “waters of the United States” are subject to Clean Water Act jurisdiction, EPA, the Corps, federal courts across the country, and the regulated community have all struggled to interpret the Supreme Court’s rulings.  Those rulings, 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), offered no clear guidance.  Indeed, Justice Kennedy’s lone concurrence in the Rapanos plurality opinion stands as the guiding principle in determining what defines a “water of the United States.”

Justice Kennedy’s view that waters with a “significant nexus” to more traditionally jurisdictional waters may be regulated provides the basis of EPA’s and the Corps’ proposed regulation.  Among other things, the regulation would, for the first time, define “significant nexus.”  That term would be defined as “a more than speculative or insubstantial effect that a water, including wetlands, either alone or in combination with other similarly situated waters in the region . . . has on the chemical, physical or biological integrity” of more traditionally jurisdictional waters as defined in the regulation.  The proposal would also define “tributary” such that any defined tributary would have the significant nexus necessary to bring it within the scope of the Clean Water Act.

The agencies have submitted a draft of the proposed regulation to the Office of Management Budget.  When published in the Federal Register, it will undoubtedly generate thousands of comments.  It is far too early to speculate as to whether the final regulation will look like the proposed regulation, when a final regulation may be issued, and, in the face of almost certain litigation once the rule is final, when the regulations may actually be implemented. 

-- Josh Bloom

For more information, please contact Josh Bloom at (415) 228-5406 or jab@bcltlaw.com.

Supreme Court Agrees to Review EPA’s Greenhouse Gas Rules for Stationary Sources

Earlier today, the Supreme Court announced that it would review the EPA’s decision to regulate greenhouse gas emissions from stationary sources such as power plants and industrial facilities.

The Court granted certiorari on a narrow issue that follows from its decision in Massachusetts v. EPA, 549 U.S. 497 (2007):

“Whether EPA permissibly determined that its regulation of greenhouse gas emissions from new motor vehicles triggered permitting requirements under the Clean Air Act for stationary sources that emit greenhouse gases.” 

In Massachusetts v. EPA, the Court held that EPA had authority to regulate greenhouse gases as “air pollutants” under Section 202(a)(1) of the Clean Air Act (42 U.S.C. § 7521(a)(1)), a provision that applies to new motor vehicles.  On remand following the Supreme Court’s ruling, EPA made the “endangerment finding” needed to initiate regulation of greenhouse gases in motor vehicles—i.e., that greenhouse gases may “cause, or contribute to,  air pollution which may reasonably be  anticipated to endanger public health or  welfare.”  (Id.)  In separate regulatory proceedings, EPA concluded that the its decision to regulate greenhouse gas emissions from new motor vehicles compelled the conclusion that it was also required to regulate greenhouse gases from stationary sources under the Clean Air Act’s Prevention of Significant Deterioration (“PSD”) program.

The Court’s order consolidates six petitions for review (12-1146, 12-1248, 12-1254, 12-1268, 12-1269, and 12-1272), but granted review on only the narrow question of whether EPA correctly concluded that its endangerment finding under the Clean Air Act’s new motor vehicle provision requires the Agency to also regulate greenhouse gas emissions from stationary sources.

--Chris Jensen

For more information, contact Chris Jensen at (415) 228-5411, or cdj@bcltlaw.com.

Debtors Beware: Resolving Environmental Liabilities in a Judicially Approved Bankruptcy Settlement Triggers the Statute of Limitations on CERCLA Contribution Claims

When an entity that has filed a petition for relief under Chapter 11 of the U.S. Bankruptcy Code resolves its environmental liability to a state or the United States via a settlement agreement, there are several steps involved in the process.  Typically, the debtor and the state or United States will first execute a written settlement agreement.  The parties will then submit that agreement for approval by the bankruptcy court.  If the bankruptcy court approves the settlement, it will issue a written approval.  The settlement is then incorporated into the plan of reorganization.  If the bankruptcy court approves the plan of reorganization, it will issue a written confirmation. 

Given the numerous steps involved in the process, the debtor entity may be uncertain as to which of the steps starts the clock on its statute of limitations for contribution claims under the Comprehensive Environmental Response, Compensation, and Liability Act (“CERCLA”) subsection 113(f).  The relevant statute of limitations provision is CERCLA section 113(g)(3)(B), which provides: “No action for contribution for any response costs or damages may be commenced more than 3 years after . . . entry of a judicially approved settlement with respect to such costs or damages.”  42 U.S.C. § 9613(g)(3)(B).  Recent decisions issued in federal district courts in Washington, Montana, Utah, New York, and Colorado confirm that the statute of limitations under CERCLA section 113(g)(3)(B) is triggered on the date that the bankruptcy court approves a settlement agreement between the debtor and the government, not on the date that the bankruptcy court approves a plan of reorganization or the date a plan of reorganization becomes effective. 

In ASARCO LLC v. HECLA Mining Company, 2012 WL 5929962 (E.D. Wash., November 27, 2012), defendant Callahan Mining Corporation (“Callahan”) filed a motion to dismiss a CERCLA contribution claim, arguing, in relevant part, that the bankruptcy court’s approval of Asarco LLC’s (“Asarco”) settlement with the State of Washington triggered the statute of limitations under CERCLA section 113(g)(3)(B).  Asarco argued that the statute of limitations did not begin to run until either the bankruptcy court approved the confirmed plan of reorganization or the plan of reorganization became effective.  Asarco further argued that even if its settlement with Washington triggered the statute of limitations, its complaint was still timely when the rules for computing time under Rule 6(a) of the Federal Rules of Civil Procedure are applied.  The district court denied Callahan’s motion to dismiss, stating that Rule 6(a) was relevant in determining the statute of limitations and thus impliedly holding that the triggering event for Asarco’s contribution claim was the judicial approval of the bankruptcy settlement, not the approval of the confirmed plan of reorganization or the effective date of the plan of reorganization.  2012 WL 5929962 at *5.  

In ASARCO LLC v. Atlantic Richfield Co., 2012 WL 5995662 (D. Mont. Nov. 30, 2012), defendant American Chemet Corporation (“American”) similarly moved to dismiss a CERCLA contribution claim on statute of limitations grounds, arguing that Asarco resolved its liabilities in settlement agreements with the United States Environmental Protection Agency (“EPA”) that were judicially approved in 1990 and 1998.  In response, Asarco argued that the statute did not begin to run until either the bankruptcy court approved the confirmed plan of reorganization or the plan of reorganization became effective.  The district court denied American’s motion to dismiss, but held that, “The plain language of § 9613(g)(3)(B) contradicts [Asarco’s] contention that the statute of limitations did not begin to run until its Reorganization Plan was either approved by the Bankruptcy Court or became effective.”  2012 WL 5995662 at *2.  The court held that the statute of limitations runs from the date of the entry of the settlement agreement, not the date that each provision of that settlement takes effect.  Id.

In a third case, ASARCO LLC v. Xstrata PLC, 2013 WL 2949046 (D. Utah, June 14, 2013), defendant Xstrata PLC (“Xstrata”) filed a motion to dismiss, arguing that Asarco’s CERCLA contribution complaint was filed outside the applicable statute of limitations under CERCLA section 113(g)(3)(B) because more than three years had passed since the bankruptcy court approved a private party settlement relating to Asarco’s environmental liabilities.  Asarco argued the entry of the order approving the private party bankruptcy settlement did not trigger the statute of limitations; it was triggered when Asarco’s plan of reorganization became effective because that is when the amount of liability under the private agreement was fixed.  The court rejected both parties’ arguments and denied the motion to dismiss, reasoning that under CERCLA section 113(g)(3)(B), the triggering date for the statute of limitations was the bankruptcy court’s June 5, 2009 approval of a settlement entered between Asarco and EPA, which gave rise to Asarco’s right to contribution under CERCLA section 113(f)(3)(B).  2013 WL 2949046 at *3-5.  Because Asarco filed its complaint on June 5, 2012, its complaint was timely.  Id. at *5. 

In a fourth case, Asarco LLC v. Goodwin, U.S. District Court, S.D.N.Y., Case No. 1:12-cv-03749, Docket Nos. 30-32, defendant trustees filed a motion to dismiss Asarco’s CERCLA contribution claim, arguing that the bankruptcy court’s approval of Asarco’s settlement of its environmental liabilities with the State of Washington more than three years prior to the date of Asarco’s original complaint triggered the statute of limitations under CERCLA section 113(g)(3)(B) and barred Asarco’s claim.  Asarco argued that its claims were timely because the statue of limitations was not triggered until the amount of its liability was fixed, which occurred when its plan of reorganization was confirmed.  Case No. 1:12-cv-03749, Docket No. 35.  The court rejected Asarco’s argument and granted the defendant trustees’ motion to dismiss on the basis that Asarco’s claims were time-barred, among other reasons.  Case No. 1:12-cv-03749, Docket No. 41 and transcript of hearing on motion to dismiss.     

Finally, in ASARCO LLC v. Union Pacific Railroad Company, 2013 WL 5291422 (D. Colo., September 19, 2013), the court adopted the recommendation of the magistrate judge and granted defendants’ Union Pacific Railroad Company (“Union Pacific”) and Pepsi-Cola’s (“Pepsi”) motions to dismiss.  Both Union Pacific and Pepsi argued that Asarco’s CERCLA contribution complaint was time barred under CERCLA section 113(g)(3)(B) because more than three years had elapsed since the date that the bankruptcy court approved a settlement between Asarco and EPA.  Asarco argued that the statute did not begin to run until the bankruptcy court approved the confirmed plan of reorganization and the plan of reorganization became effective.  The court held that “the date a settling party makes payment is irrelevant” and that the statute of limitations was triggered by the bankruptcy court’s entry of the settlement between Asarco and EPA.  2013 WL 5291422 at *5.  The court cited the Atlantic Richfield Co. and Xstrata opinions (supra) as persuasive authority. 

Based on these decisions, debtors who resolve their environmental liability to a state or the United States via settlement should be prepared to file any claims for contribution under CERCLA subsection 113(f) within three years of the date that the bankruptcy court issues its approval of the settlement agreement. 

--Estie Kus

For more information, contact Estie Kus at (415) 228-5463 or emk@bcltlaw.com.