A Court-Side Seat: An End-of-Year Environmental Update

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As 2022 draws to a close, here is a brief description of recent environmental and regulatory law rulings, as well as new federal rulemaking proceedings.

United States Tax Court

Green Valley Investors, LLC et al, v. Commissioner of Internal Revenue
On November 9, 2022, the Tax Court agreed with the taxpayers that the IRS’s use of administrative Notice 2017-10 to impose substantial tax liabilities violated the Administrative Procedure Act (APA). The notice was the agency’s response to a provision in the American Jobs Creation Act of 2004 which increased the penalties for engaging in a reportable transaction understatement. Here, at issue was the value of charitable deductions generated by the creation of environmental easements made in connection with land transactions. These claimed deductions amounted to more than $60 million. The petitioners argued that IRS Notice 2017-10, which authorized such large penalties, was in fact a “legislative rule” whose promulgation should have complied with the notice and comment requirements of the APA. The agency contended that the Congress, by implication, absolved the IRS from the notice and comment requirements. The court agreed with the petitioners and set aside Notice 2017-10 and the imposition of penalties under Section 6662A of the Jobs Creation Act. On December 8, 2022, the IRS published a notice of proposed rulemaking that would correct the APA deficiencies noted by the courts. (See 87 FR 75185.)

The U.S. Court of Appeals for the DC Circuit
The DC Circuit has ordered the Environmental Protection Agency (EPA) to complete its much-delayed cyantraniliprole evaluation under the Endangered Species Act by September 2023. In doing so, the court granted a writ of mandamus petition submitted by the Center for Biological Diversity on November 22, 2022. The EPA registered this new pesticide several years ago without complying with the dictates of the Endangered Species Act (ESA), and five years ago it was ordered by the court to fulfill its statutory obligation. None of the parties to this litigation desired to have the court vacate the registration, because the challenged registration still provides some enhanced protection to listed dangerous and threatened species. The case is In re: Center for Biological Diversity and Center for Food Safety, decided on November 22, 2022.

U.S. Court of Appeals for the Third Circuit
On November 8, 2022, the Third Circuit again dismissed a lawsuit filed by the Adorers of the Blood of Christ, a religious order strongly opposed to the route, construction and operation of an interstate natural gas pipeline that would traverse their property. The nuns’ failure to participate in the administrative proceedings that culminated in the authorization of the pipeline by the Federal Energy Regulatory Commission (FERC) foreclosed their claim under the Natural Gas Act in the federal courts. The Third Circuit noted that the pending proceeding at FERC was widely publicized and the Act limited most reviews to those administrative law proceedings. The case is Adorers of the Blood of Christ v. Transcontinental Gas Pipeline Company, LLC.

U.S. Court of Appeals for the Fifth Circuit
In an unusual case, the Fifth Circuit held that Horseracing Integrity and Safety Act, passed in 2020, which is intended to “nationalize the governance of the thoroughbred horseracing industry,” contains an unconstitutional delegation of authority to the Horseracing Integrity and Safety Authority (HISA) that otherwise operates under the Federal Trade Commission. The many plaintiffs and private horseracing associations argued that HISA is facially unconstitutional because it delegates government power to a private entity without sufficient agency supervision. Citing the DC Circuit’s decision in “Amtrak I,” 721 F.3d 666 (2013), the court holds that HISA violates the Supreme Court’s “private non-delegation” doctrine. The case is National Horsemen’s Benevolent and Protective Association, et al., v. Federal Trade Commission.

U.S. Court of Appeals for the Sixth Circuit
On November 8, 2022, the court decided another “Flint Water” case. All of these cases were generated by the tragic consequences of switching the Flint, Mich., municipal water supply from the water provided by the Detroit Water and Sewage Department to the Flint River. The aging pipes serving Flint were adversely affected by this new water source, and a public health crisis resulted when lead leached from these old pipes. Many civil and criminal complaints were filed against government agencies and personnel and the engineering firms that provided assistance during this time. Some of the defendants provided depositions in one case but insisted they could still invoke their Fifth Amendment rights not to provide testimony in a separate proceeding in the same case. The Sixth Circuit agreed, holding that a witness can testify at a deposition in an earlier proceeding in this case without forgoing the right to invoke the Fifth Amendment’s privilege against self-incrimination in a later and separate proceeding. The case is entitled simply, In re: Flint Water Cases (2022).

U.S. Court of Appeals for the Ninth Circuit
On December 1, 2022, the Ninth Circuit decided the case of California Department of Toxic Substance Control (DTSC) v. Dobbas, et al., a CERCLA insurance case. The court reversed the lower court’s ruling that refused to allow two insurance companies and an excess insurer to intervene in ongoing DTSC federal court litigation to contest a potential default judgment against their now bankrupt insured which owned land in Elmira, Calif. The court of appeals held that the insurance companies had a legally protected interest in intervening in this matter especially when they had no knowledge that this litigation was proceeding, and no other party to this litigation would be protecting their interest.

Meanwhile, in Texas

Texas Supreme Court
On December 9, 2022, the court granted a writ for mandamus in In re: Kuraray American, Inc. Kuraray operates an ethylene vinyl plan in Pasadena, Texas, which experienced an ethylene vapor release in May 2018 during a plant turnaround. The vapor ignited and several plant workers were injured. In the resulting personal injury litigation, plaintiff’s counsel requested production of all cell phone data from the operating personnel’s cell phones. The trial court granted this request, but Kuraray objected, and eventually filed this petition for a writ of mandamus. Acknowledging that cell phone data use is often the focus of discovery, the Texas Supreme Court held that there must be some evidence submitted to the court that cell phone use was a contributing cause in the accident. Here, that evidence was not provided, and the writ issued.

Third Texas Court of Appeals
On November 22, 2022, the Third Texas Court of Appeals sitting in Austin affirmed the trial court’s ruling that the Texas Commission on Environmental Quality (TCEQ) must disclose certain information requested by the Sierra Club pursuant to the Texas Public Information Act. The case is TCEQ v. Sierra Club and Ken Paxton, Attorney General of Texas. The Sierra Club requested the TCEQ’s records relating to the agency’s creation of a risk factor or cancer-risk value or metric for ethylene oxide. The Commission sought a determination from the Attorney General that this information qualified for the deliberative process privilege. The Attorney General opined that that the TCEQ’s request was not timely filed, and the requested information must be released unless there is a compelling reason to withhold this data, but here that compelling case was not made. The Commission then filed an appeal to the Austin court of appeals, which rejected the appeal and awarded the Sierra Club its attorneys’ fees and costs.

Thirteenth Texas Court of Appeals
On November 29, 2022, the Thirteenth Court of Appeals sitting in Corpus Christi, Texas, affirmed the lower court’s ruling that dismissed a lawsuit seeking an injunction against the construction and operation of a new LNG facility to be located near Port Isabel, Texas. The plaintiffs argued that the proposed LNG terminal will have a detrimental negative environmental impact on the Port Isabel area. The defendants, the Brownsville Navigation District, argued that the authority to permit and license this facility was exclusively lodged by Congress with FERC, and that FERC had issued the required authorization. While FERC granted petitions to review whether FERC’s environmental assessment complied with the National Environmental Policy Act (NEPA), it did not vacate the federal permits to site, construct and operate the LNG facilities. See Vecinos para el Bienestar v. FERC, 6 F. 4th 1321 (CADC 2021).

New Federal Rulemaking Proceedings

The Department of Defense, the GSA and NASA

87 FR 68312 (November 14, 2022)—These agencies are proposing to amend the Federal Acquisition Rules to ensure that significant and major federal contractors disclose their greenhouse gas emissions and climate-based targets to reduce their greenhouse gas emissions. Comments are to be filed no later than January 13, 2023. This proceeding is being taken in response to Executive Order 14030, “Climate-Related Financial Risk.”

The U.S. Fish and Wildlife Service

87 FR 72674 (November 25, 2022)—The U.S. Fish and Wildlife Service has decided to list two distinct species of the Lesser Prairie Chicken as “endangered” or “threatened” under the Endangered Species Act. The rule is effective on January 24, 2023, and could affect oil and gas activities in certain areas.

The Internal Revenue Service

87 FR 75196 (December 8, 2022)—The IRS is proposing to issue rules which apply to ”syndicated conservation easement transactions” and identify them as listed transactions under the Code. These transactions provide a means by which deductions can be taken for the charitable contributions of environmental easements. Comments must be filed by February 6, 2023.

The Environmental Protection Agency

87 FR 68946 (November 17, 2022)—The EPA is proposing changes to its FOIA rules to allow requesters to seek expedited processing of their requests if the records sought pertain to an environmental justice-related need and will be used to inform an affected environmental justice community. Comments must be submitted no later than December 19, 2022.

87 FR 74702 (December 6, 2022)—This is a supplemental EPA notice of proposed rulemaking authorized by the Clean Air Act to update, strengthen and expand the methane gas standards that affect oil and gas operations. Comments must be received on or before February 13, 2023.

87 FR 75334 (December 8, 2022)—This is a final rule issued by EPA, effective February 6, 2023, which promulgates a Federal Implementation Plans (FIP) under the Clean Air Act consisting of rules which establish emission control requirements for existing, new, and modified oil and natural gas sources on Indian lands (i.e., specified Utah Indian reservations).

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