On April 18, 2012, Winston & Strawn and the Environmental Law Institute co-hosted an informative seminar on, “Hydraulic Fracturing Risks and Opportunities: Regulator, NGO, Industry and Investor Perspectives,” in New York City. The meeting was expertly chaired by May Wall, a partner in the law firm’s Environmental Law Department in Washington, D.C. The panelists included Kate Sinding, an NRDC Senior Attorney and Deputy Director of NRDC’s New York Urban Program; John Imse, a principal at Environ in Denver, who advises clients in the oil and gas industry; Lawrence A. Wilkinson, an analyst with Standard & Poor’s Oil & Gas Team; and Carol P. Collier, the Executive Director of the Delaware River Basin Commission. All four speakers were knowledgeable, informative and articulate. Unfortunately, there is insufficient space here to summarize all of the speakers' discussion points.

The U.S. Supreme Court has rejected the federal government’s argument that compliance orders issued by the U.S. Environmental Protection Agency (“EPA”) under the Clean Water Act, 33 U.S.C. §§ 1251 et seq. (the “CWA”), cannot be challenged in court.  In a unanimous opinion issued on March 21, 2012, the Court held that such orders constitute “final agency action” that can be challenged under the Administrative Procedure Act, 5 U.S.C. § 706(2)(a) (the “APA”).  Sackett v. United States Environmental Protection Agency, 566 U.S. ___, No. 10-1062 (Mar. 12, 2012).  In so doing, the Court has weakened one of the favored arrows in the EPA’s enforcement quiver. 

The case arose when Chantell and Mike Sackett bought two-thirds of an acre near Priest Lake, Idaho, intending to build their home there.  The vacant lot is zoned residential and is located in a platted subdivision, with sewer and water hookups.  The lot is separated from the lake by several lots where homes have already been built.  Sackett, slip op. at 3.  The Sacketts applied for and obtained the necessary building permits from the local authorities.  They began preparing the lot to build their home by filling in part of it with dirt and rock.  Id.  Not long after they did so, the EPA hit them with a compliance order. 

As the Court explained, the EPA’s compliance order contained a number of “Findings and Conclusions,” including: that the Sacketts’ property contains “wetlands”; that the property’s wetlands are adjacent to Priest Lake, a “navigable water” under the CWA; and that, by filling in about half an acre of the “wetlands” on their property, the Sacketts had discharged pollutants into waters of the United States in violation of 33 U.S.C. § 1311(a).  Slip op. at 3-4.  The order required the Sacketts to return the property to its prior condition and to seek a wetlands permit – costs that, according to the Sacketts, would add up to tens of thousands of dollars, many times the $23,000 they paid for the property.  Failure to comply with the order could result in fines of up to $75,000 per day – $37,500 for the statutory violation and up to $37,500 for violating the compliance order.  Id. at 2.

The Sacketts tried to challenge the wetlands finding – both before the EPA and in federal court under the APA – but their challenges were rejected.  The district court in Idaho concluded that the CWA precludes judicial review of compliance orders before the EPA has started an enforcement action in federal court, and granted the EPA’s motion to dismiss.  Sackett v. EPA, No. 08-CV-185-N-EJL, 2008 WL 3286801 (D. Idaho Aug. 7, 2008).  The Ninth Circuit affirmed.  Sackett v. EPA, 622 F.3d 1139 (9th Cir. 2010).  In other words, under the lower courts’ decisions, the only way in which the Sacketts could obtain judicial review of the compliance order would be to violate the order, wait for the EPA to sue them, and then raise their arguments in the enforcement action brought by the EPA, while potentially accruing up to $75,000 per day in civil penalties.

In his opinion for a unanimous Court, Justice Scalia set out to explain to the reader “what all the fuss is about.”  After describing the Sacketts’ situation and history – what Justice Scalia referred to as the “strong-arming of regulated parties” by government regulators – the Court held that the Sacketts were entitled to seek relief from the courts. 

The Court explained that the APA has a strong presumption in favor of allowing judicial review of final agency actions.  The Court rejected the EPA’s argument that the lack of an express provision allowing judicial review of administrative compliance orders in the CWA precluded such review, explaining:

[I]f the express provision of judicial review in one section of a long and complicated statute were alone enough to overcome the APA’s presumption of reviewability for all agency action, it would not be much of a presumption at all.

Slip op. at 8.

The Court held that the EPA’s compliance order against the Sacketts met all the requirements for APA judicial review.  First, the Court held that the compliance order was a “final agency action” because it imposed serious legal obligations on the Sacketts, including significant potential double penalties.  Even more importantly, the order represented the “‘consummation’ of the agency’s decisionmaking process” – because the terms of the compliance order were not subject to any further review, as the Sacketts discovered when they unsuccessfully sought a hearing before the EPA.  Slip op. at 5-6.  Second, the order clearly determined the Sacketts’ obligations by ordering them to restore their property to its prior condition.  Finally, the CWA does not expressly preclude review by the courts.  The Court therefore reversed the judgment of the Court of Appeals and remanded for further proceedings.  Id. at 10. 

Justice Ginsburg and Justice Alito filed concurring opinions.  In her one-paragraph concurrence, Justice Ginsburg emphasized that the opinion does not address the question of whether the property owners “could challenge not only the EPA’s authority to regulate their land under the Clean Water Act, but also, at this pre-enforcement stage, the terms and conditions of the compliance order” – a question that is left for another case and another day.

Justice Alito, in contrast, issued a scathing rebuke of the EPA, the CWA, and Congress, stating that “[t]he position taken in this case by the Federal government – a position that the Court now squarely rejects – would have put the property rights of ordinary Americans entirely at the mercy of [EPA] employees.”  Alito, J., concurring op. at 1.  While the Court’s opinion “provides a modest measure of relief” by allowing property owners to challenge the EPA’s jurisdictional determination under the APA, Justice Alito stated that “[r]eal relief requires Congress to do what it should have done in the first place: provide a reasonably clear rule regarding the reach of the Clean Water Act.”  Id. at 2.  Specifically, Judge Alito criticized the EPA’s and Congress’s failure to define what is meant by “the waters of the United States,” leaving this crucial jurisdictional determination to be made “on a case-by-case basis by EPA field staff.”  Id. 

The decision does not reach the merits of the Sacketts’ challenges to the compliance order, nor does it address the Sacketts’ due process argument.  Nonetheless, the decision is significant, and the stakes are high.  While the media has consistently portrayed this case as a battle between property owners as David against the EPA’s Goliath, the opinion also represents a victory for all property owners, including businesses and corporations.  Indeed, General Electric Co. had sought similar relief in a case last year, and filed an amicus brief in support of the Sacketts.  Moreover, the Court’s decision could impact not only CWA enforcement authority, but possibly could also impact review of compliance orders issued under other federal environmental statutes which, like the CWA, do not contain express prohibitions to judicial review.  And, for cases arising out of orders issued pursuant to statutes that do contain an express prohibition against judicial review, the Court may yet decide to go beyond the terms of the statute and the APA and address the due process argument it did not reach in the Sacketts’ case.

The West Virginia Legislature recently passed a bill designed to regulate Marcellus Shale Drilling. The City of Wellsburg West Virginia just passed an ordinance that bans hydraulic fracturing in the City Limits. The City of Morgantown passed a similar ordinance but was struck down by a circuit court judge and the time for appeal elapsed and the Supreme Court of Appeal for West Virginia did not have the opportunity to rule on the trial court’s decision. The Wellsburg ordinance will be challenged. Meanwhile cities and counties in West Virginia and in surrounding states are leasing its properties to oil and gas developers to shore up depleting city coffers and as a means to finance public projects. Airports and County park systems are leasing undeveloped land as well. Meanwhile the plaintiffs’ bar in West Virginia, Maryland, Pennsylvania, and Ohio are having public meetings to sign up potential litigants. The lawsuits range from allegations of contaminated water, property destruction, nuisance, trespass, and personal and bodily injury. Owners of the surface have created groups and organizations to fight the ability of the producers to construct the large drilling pads on the property. The surface owners contend that when the minerals were severed from the surface there was no intent to permit large drilling pads that sometimes exceed an acre or more to be placed on the surface One of the arguments is that the technology in use today was never contemplated as being possible at the time the surface was separated from the minerals. Moreover, as drilling has increased so has the number of injuries to workers. OHSA and other regulatory agencies are investigating the conduct of the producers and their contractors. Personal injury suits are on the rise and insurers are beefing up their reserves in anticipation of the increased number of lawsuits. State environmental agencies are being pressured to step up monitoring of drilling activities and fines and penalties are being levied in record numbers.

The biggest source of controversy is the alleged water contamination to water caused by hydraulic fracturing or also known as “fracking.” Many environmental groups are filing actions to limit or all together ban “fracking” because of charges the well water and streams are being contaminated. There are even charges that “fracking” is causing earth quakes. Yet, the economic boom that the Marcellus Shale and the Utica Shale exploration has brought to rust belt areas in West Virginia, Pennsylvania, and Ohio, as well as other states has pitted public officials and local business supporters against the anti-drilling advocates. Labor unions who may benefit from the increased drilling are at odds with some of their traditional allies that support union labor. However, unions are fighting the out of state developers demanding that jobs go to local workers and not “out of state scabs.” Most of the states within the Marcellus Shale region are heavily unionized. The states mentioned above are all vying for the construction of a “Cracker” facility in their state. WV has passed specific legislation to induce the construction of a “Cracker” facility, which will create an economic boom to any area where it is built. A cracker plaint can turn the bi-products of Marcellus shale gas drilling into plastics and other industrial items. See “Pennsylvania in Running for Cracker Plant,” Pittsburg.cbslocal.com/2012/02/06, “Cracker plant tax break passes West Virginia Legislature,” http:// The register-herald.com/todaysfrontpage, “Start-up waiting on funds for plant, dailymail.com/business, February 16, 2012

Law firms are flocking to regions where the drilling activities occur. Many of these towns and municipalities would have never attracted major firms to open their doors there. Papers in Pennsylvania, West Virginia, Ohio, and Maryland are announcing the hiring of specialized energy lawyers. Courthouse record rooms are so crowded in some areas that waiting times have been established. Locals comment about the number of out of state license plates seen in the local restaurants and taverns; complaints that it is hard to find hotel rooms in the near vicinity; traffic jams are now common in towns with only one stop light, crossing the road is hazardous for the first time in years and yes rental and home values are increasing and so are property taxes. The word boomtown is being used in Appalachia and western Pennsylvania for the first time since the decline in the steel and coking industry. Go to any courthouse in the region and the legal talk is about Marcellus Shale. There is only one thing to do, I suggest we all dust off our property law textbooks and reacquaint ourselves with transfer rights.

For more information on Hydraulic Fracturing you can request a paper prepared by our firm. Send requests to cbailey@bailewyant.com.

Charles R. Bailey is a managing member of Bailey & Wyant, P.L.L.C. We have offices in Charleston and Wheeling WV. David Wyant past president of the West Virginia Defense Trial Lawyers is the managing member of the Wheeling office. Web site is www.baileywyant.com , phone 304 345 4222, fax 304 345 3133, visit our facebook page Bailey & Wyant. 

DRI would like to recognize and thank the over 30 attendees of this month’s Toxic Torts and Environmental Law Seminar, who volunteered their time to prepare packages to send to U.S. troops and their children.  In conjunction with Operation Gratitude, attendees stuffed 300 teddy bears to give to the children of deployed soldiers and prepared hundreds of gift bags to be sent to troops in Afghanistan, sailors and marines stationed on Navy ships, and to Wounded Warrior Transition Units throughout the United States.  

(originally published in the Oil & Gas Law Brief on October 10, 2011)

On August 17, 2011, the Oil & Gas Law Brief reported that a West Virginia judge had entered an order striking down a ban on hydraulic fracturing enacted by the City of Morgantown.  The judge ruled that West Virginia statutes make oil and gas regulation exclusively a matter of state law, and that local governments do not have authority to enact additional regulations.  That judgment is now final. 

Carrier not responsible for covering clean-up costs at a CERCLA site under Maryland law. Those costs were incurred to satisfy a regulatory requirement.

Background: On July 9, 1999, the U.S. Environmental Protection Agency ("EPA") expressed its intent to include Industrial Enterprises’ property and other neighboring properties near the Back River in Baltimore County, Maryland, in a Superfund Site designated for cleanup under the Comprehensive Environmental Response, Compensation, and Liability Act (“CERCLA”). The EPA cited the presence of hazardous substances on the Site. At the time of the EPA letter, Industrial Enterprises held a comprehensive general liability insurance policy (“CGL policy”) with Penn America Insurance Company. Industrial Enterprises forwarded the EPA letter to Penn America and requested that it provide a defense.

The insurer denied coverage. Penn America countered that its CGL policy did not provide indemnity for costs incurred by Industrial Enterprises because: 1) such costs are not damages because of "property damage" of a third party, as required for coverage under the CGL policy, and (2) that the pollution exclusion applied because facts to support the exception to the exclusion – that any "release or escape" of the hazardous substances on Industrial Enterprises’ property be "sudden and accidental” – were not demonstrated.

Industrial Enterprises commenced this action for a judgment declaring that Penn America was obligated to pay Industrial Enterprises the amount that it had incurred and reasonably would incur as defense costs in response to the demands made by the EPA.

Issue: 1) Whether a standard CGL policy, which indemnifies the insured for "all sums which the insured shall become legally obligated to pay as damages because of ... property damage," covers the insured’s liability under the CERCLA for costs to remediate the presence of hazardous substances on the insured’s land.

Holding: On appeal, the Court of Appeals reversed the judgment of the lower court, concluding that a standard CGL policy does not cover the insured’s liability under the CERCLA. The Court based its decision on Bausch & Lomb, Inc. v. Utica Mutual Insurance Co., 625 A.2d 1021 (Md. 1993), where the Maryland Court of Appeals held that a similar CGL policy did not cover expenses incurred in response to the State’s regulatory order to remove soil containing hazardous chemicals. Therefore, the Court concluded that Industrial Enterprises’ liability under CERCLA was not liability for "property damage," but rather regulatory liability for response costs. Accordingly, the Court concluded that Penn America’s CGL policy did not cover Industrial Enterprises’ regulatory liability and, therefore, Penn America had no duty to provide Industrial Enterprises with a defense.

The U.S. Supreme Court is getting set to hear the challenge to a federal court of appeals decision allowing several states to pursue a public nuisance suit against various utilities for their alleged greenhouse gas emissions. See American Electric Power Co. v. Connecticut, No. 10-174 (U.S. certiorari petition granted 12/6/10).  Last week the federal government weighed in and asked the Court to overturn the Second Circuit's decision in this public nuisance suit against American Electric Power Co. and other utilities for their greenhouse gas emissions, but on relatively narrow grounds. The brief filed by the Acting Solicitor General argues that the plaintiffs lacked “prudential standing” and that their suit should therefore be dismissed. One central issue in the case is whether the EPA will be the primary regulator of greenhouse gas emissions or whether private parties will be permitted to go directly to court. Should a single judge set emissions standards for regulated utilities across the country — or, as here, for just that subset of utilities that the plaintiffs have arbitrarily chosen to sue? Judges in subsequent cases could set different standards for other utilities or industries, or conflicting standards for these same utilities. A second issue is whether controlling power plant emissions' alleged effects on the climate is a political question beyond the reach of the courts. The government's current position is that if plaintiffs' overall theory is correct, that means that virtually every person, organization, company, or government across the globe emits greenhouse gases, and also virtually every one of them will sustain climate-change-related injuries. Principles of prudential standing do not permit courts to adjudicate such generalized grievances absent specific statutory authorization, said the SG.

This topic will be featured at the breakout session for the Mass Torts & Class Actions SLG at this year's DRI Product Liability Conference in New Orleans. We'd be interested to hear you reaction to the briefs, including the papers from amici. DRI's amicus brief stresses to the Supreme Court that it should reverse the Second Circuit's decision in order to bring fairness, consistency and predictability to public nuisance litigation seeking to redress alleged climate change injuries. Although DRI acknowledges in its brief that the respondents' goal of reducing the threat of possible global climate change is laudable, pursuing a federal common law public nuisance action against a handful of arbitrarily selected energy-generating targets is an improper use of the courts in achieving that end.

Originally posted at Bill Ruskin's Blog site: http://www.toxictortlitigationblog.com

Two electrifying Circuit Court of Appeals cases handed down in 2009 may set the stage for climate change litigation in the years to come. The decisions are Connecticut v. American Electric Power Co., et al., 582 F.3d 309 (2d Cir. 2009) and Comer v. Murphy Oil USA, et al., 585 F.3d 855 (5th Cir. 2009). In both cases, the Court of Appeals reversed the decision of the federal district court and held that the plaintiffs had pleaded adequate facts to permit their cases to proceed. Therefore, unless the United States Supreme Court weighs in and reverses this growing momentum in climate change litigation, it is likely that federal trial courts will be grappling with all of the issues surrounding climate change liability, not least of which will be the science. Did defendant oil and coal producers, chemical companies and coal-using companies bring down the wrath of Hurricane Katrina on the Mississippi plaintiffs? What scientific evidence will be marshaled by plaintiffs to support their allegations? These are the questions that the Comer court will have to grapple with. The very idea that a corporate entity could be found legally responsible for unleashing the catastrophic power of a hurricane would have been unthinkable even ten years ago. Leaving aside epochal issues of public policy, justiciability and theology, the science surrounding climate change litigation will figure prominently in these lawsuits. More...