Environmental Roundup – April 2019

Besides showers, this April brought a number of notable new environmental decisions issued by the federal courts. Before your mind turns to May and its flowers, here’s a summary:

1. DC Circuit. On April 23, 2019, the U.S. Court of Appeals for the DC Circuit decided the case of State of New York, et al. v. EPA. In the Clean Air Act amendments of 1990, the Congress established the Northeast Ozone Transport Region, composed of the states of Connecticut, Delaware, Maine, Maryland, Massachusetts, New Hampshire, New Jersey, New York, Pennsylvania, Rhode Island, Vermont, the District of Columbia and a portion of Virginia. Recently, several of these states requested EPA to expand this region to include the “upwind states” of Illinois, Indiana, Kentucky, Michigan, North Carolina, Ohio, Tennessee, West Virginia, and the remaining portions of Virginia. Doing so would assist the “downwind” states in complying with EPA’s 2008 Ozone standard. EPA rejected this request, which was then appealed to the DC Circuit by the states of Connecticut, Delaware, Maryland, Massachusetts, New York, Pennsylvania, Rhode Island and Vermont. Because of its unique properties, ozone created by emissions in the upwind states can be transported to the downwind states, thus allegedly hampering their ability to cope with EPA ozone standards. The court agreed that EPA has the authority to expand the Northeast Transport Ozone Transport Region, but it also has the ability to exercise its reasonable discretion not to do so. In addition, the agency’s decision to rely instead on the remedies available to it in in the Clean Air Act’s “Good Neighbor” provision was reasonable and adequately justified, and the court accordingly upheld the agency’s decision. The court also noted that other remedies may be available to the downwind states, just not this one.
2. DC Circuit. The Court also decided on April 23, 2019 the case of Air Transport Association of America v. Federal Aviation Administration. The FAA held that the payments made by the City of Portland’s airport’s utility city charges for offsite stormwater drainage and Superfund remediation was not an “impermissible diversion” of airport revenues or in violation of the “Anti-Head Tax Act,” which is codified at 49 USC Section 40116(b) and which prohibits collecting a tax on persons travelling in air commerce. Here, the charges are assessed against the airport for the use by the airport of the city’s water and sewage services. The Superfund assessment is based on the fact that the Willamette River which runs through downtown Portland could make the city a Superfund potentially responsible party, and the cty is assessing all rate payers—including the airport—a Superfund assessment. The airport is federally funded and is owned and operated by the Port of Portland, and the Port pays a combined sewer, stormwater /water bill with multiple line items including these contested items. The court notes that federal law, in particular 49 USC Section 47107(k)(2), authorizes airport revenues to be used for the operating costs of the airport receiving federal funding, and the FAA could reasonably determine that these general expenses are authorized airport “operating costs” even though the city services are provided outside the boundaries of the airport.
3. The Fifth Circuit. On April 12, 2019, the U.S. Court of Appeals for the Fifth Circuit decided, in the case of Southwestern Electric Power Company, et al. v. EPA, that EPA’s 2016 revisions of the Clean Water Act’s effluent limitations guidelines (ELGs) for steam-electric power plants were, in part, contrary to the requirement of the Act and must be vacated. These guidelines, to be based on Best Available Technology (BAT), still rely on 1982 technology (surface impoundments) to properly manage large amounts of plant wastewater that issue from plants “and foul our waters.” The two ELGs in question, regulating “legacy wastewater” and “combustion residual leachate” were, in the view of EPA, properly able to use surface impoundments which is contrary to the technology-forcing mandates of the Act. Accordingly, the court vacated these portions of the final ELGs and remanded them to the agency for reconsideration.
4. U.S. District Court for Montana. In Citizens for Clean Energy, et al. v. U.S. Department of the Interior, et al., the court held, on April 19, 2019, that the Department’s March 2017 withdrawal of the prior administration’s moratorium (released in January 2016) on new coal leasing on federal lands until a programmatic environmental impact statement (PEIS) was prepared that discussed climate change and other issues associated with coal mining, must be set aside for the time being because the replacement order was not accompanied by any sort of NEPA review. Over the objections of the Department, the court held that the plaintiffs have standing to maintain this action, and that the court’s review was governed by the Administrative Procedure Act’s standard of review. The court also rejected the government’s defense that since this was merely a policy shift and no new applications had in fact been processed, there was no potential environmental harm to assess because under NEPA, the plaintiffs merely had to show that the renewal of coal leasing may cause significant environmental impact; the court noted, “the lifting of the moratorium meets the relatively low threshold standard for a NEPA triggering event.” However, the court was reluctant to order the Department to prepare a new or supplemental PEIS until the government has an opportunity now to conduct a NEPA analysis.
5. U.S. Court of Appeals for the Eighth Circuit. On April 29, 2019, the U.S. Court of Appeals for the Eighth Circuit held that, under Minnesota law, the use of contaminated recycled fat (commonly generated from restaurant waste cooking oil) could trigger the defendant insurance company’s “pollution exclusion.” The case is Restaurant Recycling, LLC v. Employer Mutual Casualty Company. The buyer of the recycled fat, New Fashion Pork, blended this product with other ingredients in their animal feed. However, the fat products were contaminated with lasalocid and lascadoil, which are not considered to be safe, and caused the serious health issues for the buyer’s swine. They sued Restaurant Recycling for breach of contract, which then made a demand on its insurer to defend and indemnify it against the buyer’s lawsuit under the terms of the general commercial insurance policy. However, since Restaurant Recycling conceded that lascadoil is a “pollutant”, its dispersal by Restaurant Recycling and New Fashion Pork brought these actions within the scope of the policy’s pollution exclusion.
6. U.S. Court of Appeals for the Tenth Circuit. Also on April 29, 2017, the U.S. Court of Appeals for the Tenth Circuit issued a ruling which affirmed the decision of the United States Tax Court involving the accurate valuation of a conservation easement. The case is Roth, et al. v. Commissioner of Internal Revenue. On their 2007 tax return, the taxpayers claimed a charitable deduction of $970,000 for 40 acres of land they donated to the Colorado Natural Land Trust (the court noted that this was one of the “so-called gravel-pit cases” in which Colorado taxpayers claimed large deductions based on a conservation easement that prohibited the mining of gravel on what had historically been farmland”—which the Service has determined to be effectively worthless). When their returns were audited in 2011, the Service reduced the valuation of the easement to $40,000, but through a clerical error the taxpayers were informed that the “gross valuation misstatement penalty” in the notice of deficiency would be 20% instead of the original 40% penalty the staff had determined to be appropriate. An appeal was made to the Tax Court where the Service argued successfully that the penalty error could be corrected to be 40%. The court agreed that this was acceptable under the Code and the consistent with the rulings of other appellate courts.