Environmental Case Law Update (March – June 2015) ~ Part VI


This is Part VI of VII of a brief recap of some the significant environmental law and administrative cases decided in the past few months:

M. U.S. Court of Federal Claims

Wetlands mitigation banking agreements are subject to the rules of the U.S. Army Corps of Engineers; they can serve a useful public purpose by assisting with the restoration and preservation of waterways subject to the CWA.

On November 21, 2014, the U.S. Court of Federal Claims issued a ruling in the case of Pioneer Reserve, LLC v. United States. The Court of Federal Claims rejected the Government’s argument that Pioneer Reserve’s breach of contract claim should be dismissed because Pioneer Reserve, located in Alaska, which entered into a “mitigation banking agreement” pursuant to the regulations implemented by the Corps of Engineers, did not in fact, have a contract with the federal government. Pioneer Reserve used its pristine land to establish a mitigation bank which will make mitigation credits available under the law (the CWA) to the proponents of development projects that will require compensatory mitigation credits to offset projected environmental damages resulting from the development of the project. A mitigation banking instrument was signed by representatives of Pioneer Reserve and the Corps of Engineers, and Pioneer Reserve then encumbered to parcels of land with appropriate and protective environmental easements. The credits available to developers through the implementation of the mitigation banking agreement would be sold for $79,000 per credit. However, the Corps of Engineers unilaterally and unexpectedly, or so the plaintiff avers, drastically reduced the number of wetlands mitigation credits that could be sold, resulting in a significant financial loss to Pioneer Reserve. Pioneer Reserve filed a breach of contract action in the Court of Federal Claims, seeking damages of $12 million.

The Government argued that the claim should be dismissed, that Pioneer Reserve did not have a contract with the federal government. The Court of Federal Claims rejected this argument, noting that in other cases the Government sought to enforce the terms of a mitigation banking agreement as being an enforceable contract with the federal government. Accordingly, the Court of Federal Claims ruled that Pioneer Reserve alleged sufficient facts to establish the existence of a contract, and the case will proceed. The parties are now involved in the discovery phase of this litigation.

II.  Texas Courts

A.  Texas Supreme Court

Responding to an inquiry from the U.S. Court of Appeals for the Fifth Circuit, the Texas Supreme Court ruled, in a 5 to 4 decision, that the “coercive nature” of the administrative proceedings employed by EPA under CERCLA’s cleanup and cost recovery provisions amount to a “suit”, and a PRP’s receipt of a CERCLA letter from EPA, inviting the recipient to negotiate with EPA “is effectively a demand”. Moreover, with respect to judicial review, “as a practical matter, courts afford PRPs no hope of relief, and consequently they have no choice but to comply with EPA’s directives”. The case is McGinnes Industrial Maintenance Corporation v. The Phoenix Insurance Company and the Travelers Indemnity Company. Chief Justice Hecht wrote the majority opinion.

This decision was triggered by ongoing cleanup actions taken at the San Jacinto Waste Pits Superfund Site, which is located in Harris County, Texas, in the vicinity of Pasadena, Texas. According to the Court of Appeals, in the 1960’s McGinnes Industrial Waste Corporation dumped pulp and paper mill waste sludge into disposal pits near the San Jacinto River. EPA began investigating possible environmental contamination in 2005, and in 2007 notified McGinnes’ parent company that it was a PRP at the site, and invited the parent to begin negotiating an order for the cleanup of the site, and the reimbursement of EPA’s expenses to date. When McGinnes and its parent failed to respond to these EPA communications, the agency issued a Unilateral Administrative Order (UAO) directing McGinnes to conduct a remedial investigation and feasibility study; a failure to comply with this UAO would expose McGinnes to $37,500 per day in daily penalties, and very costly punitive damages. McGinnes was covered by standard-form commercial general liability (CGL) insurance policies at the time it was “dumping” waste at the site, and it asked for a defense in accordance with the terms of the insurance policy. The insurers refused, arguing that these EPA administrative proceedings were not a “suit” as specified by the policies. McGinnes then sued its insurers in the district court, but the district court agreed with the insurers’ position, granting their motion for summary judgment. On appeal, the Court of Appeals asked the Texas Supreme Court to answer this question: “Whether EPA’s PRP letters/and or administrative order, issued pursuant to CERCLA, constitute a ‘suit’ within the meaning of the CGL policies, triggering the duty to defend?” The Texas Supreme Court answered: “Yes”.

The dissenting justices argued that the Court was in effect rewriting these insurance policies, and described the ruling as a “disturbing decision”.

The Texas Supreme Court issued two significant rulings on June 12, 2015. In the case of Dacus, et al v. Annise Parker, et al., the Court reversed the Court of Appeals for the Fourteenth Circuit, and holds that the 2010 proposed amendment to the Houston City Charter, authorizing the imposition of maintenance fees directly on Houston City residents to finance city street and drainage improvements, did not meet the common law standard “preserving the integrity of the ballot.” The information on the ballot did not inform the voters that they would be subject to these fees; it simply identified the proposed amendment without describing how the funds would be raised. Since 1884, the Texas Supreme Court has required that such propositions be submitted with such definitions and certainly that the voters are not misled. This ruling should provide more clarity and direction to the lower courts. The case was returned to the trial court.

In Harris County Flood Control District and Harris County, Texas v. Kerr, et al., the Texas Supreme Court affirmed the ruling of the Court of Appeals for the First District that the plaintiffs, homeowners residing in the upper White Oak Bayou watershed, raised a “fact question” in their inverse condemnation lawsuit against the defendants. They complain that the county and the flood control district approved new development in their area without mitigating resulting runoff and drainage issues, causing their homes to flood following major storms. The defendants filed a plea to the jurisdiction and a motion for summary judgment, arguing that no genuine issue of fact had been raised on the elements of the takings claim. Both the Court of Appeals and now the Texas Supreme Court, in a 5 to 4 decision, disagreed. Repeated floods in the area spurred some flood control measures that proved to be inadequate and, by 1999, all of the plaintiffs’ homes had been identified by FEMA as being located in the 100 year floodplain. The case was returned to the trial court.

Justice Willett, in dissent, stated that “I fear the Plaintiffs’ theory of takings, which the Court accepts, vastly and unnecessarily expands the liability of government entities”.

On April 24, 2015, the Texas Supreme Court issued an opinion clarifying the evidentiary standards that will govern the application of the Texas Citizens Participation Act (TCPA). The law, writes the Court, was enacted in 2011, and “protects citizens who petition or speak out on matters of public concern from retaliatory lawsuits that seek to intimidate or silence them”. If a lawsuit amounts to an attempt to stifle a defendant’s ability to communicate to the public on a matter of public concern, the trial court’s duty under the TCPA is to dismiss the lawsuit unless the plaintiff’s “prima facie case” is supported by “clear and specific evidence”—a complicated formulation for the courts to administer.

Hydraulic fracturing and its consequences are an important matter of public concern, and lies at the heart of the Court’s unanimous ruling in the case of In Re Steven Lipsky. Steven Lipsky and his wife Shyla own several acres in North Texas, in somewhat close proximity to the hydraulic fracturing operations of Range Resources. They made public complaints about their contaminated well water, for which they blamed the operations of Range Resources Corporation and Range Production Company. In fact, they filed a lawsuit against Range, and alleged that Range was negligent, grossly negligent and that its operations constituted a nuisance. Range then filed a counterclaim, alleging defamation, business disparagement and a civil conspiracy between Shyla Lipsky and an environmental consultant working with her. Both EPA and the Texas Railroad Commission became involved in this controversy, but EPA withdrew its complaint against Range while the Texas Railroad Commission looked into the complaint and could find no link between the hydraulic fracturing operations and the Lipsky’s contaminated well water.

The Lipskys invoked the TCPA to seek dismissal of the counterclaim, which the trial court denied. However, an intermediate state Court of Appeals agreed that the law required the dismissal of the counterclaim. Because the TCPA had been accorded conflicting interpretations by various state courts of appeal, the Texas Supreme Court used this case to clarify the evidentiary standards imposed by the new law. Briefly, the Court held that evidence of clear and specific evidence may be supported by relevant circumstantial evidence, and that meritorious lawsuits cannot be dismissed simply because of a lack of direct, not circumstantial evidence. Applying this standard, the Texas Supreme Court agreed that Range’s allegations against Shyla Lipsky and their consultant must be dismissed, but the separate complaint against Steven Lipsky could proceed to trial. It denied both parties petitions.