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Yesterday, the U.S. Environmental Protection Agency and the U.S. Army Corps of Engineers proposed a rule to rescind the 2015 Clean Water Rule and recodify the definition of “waters of the United States,” known as WOTUS, that existed before 2015.  EPA and the Corps intend to re-evaluate and revise the WOTUS definition consistent with the Executive Order issued on February 28, 2017.  In the meantime, EPA states that the proposed rule will be implemented consistent with “Supreme Court decisions, agency guidance, and longstanding practice.”

On May 18th, the D.C. Circuit Court of Appeals granted the EPA’s request to stay challenges to the New Source Performance Standards regulating methane emissions from oil and gas infrastructure, pending review of the rule in accordance with President Trump’s Energy Independence Executive Order.  EPA announced in April that it intended to reconsider the rule and was staying a future compliance date.

Since it was issued last year, the rule has been challenged by various oil and gas industry groups on the grounds that the EPA does not have the authority to regulate methane from oil and gas infrastructure. The challengers have signed on to the EPA’s motion to put the cases on hold pending a review of the current rules.

The President’s executive order specifically directed the EPA to review and reconsider the methane rules for new oil and gas infrastructure, and if appropriate, suspend, revise or rescind them. In its motion to put the cases on hold, the EPA argued that its review of the rules could impact the disputes awaiting resolution in the Court.

Various environmental groups, as well as several states, intervened in the dispute opposing the EPA’s motion, asserting that the EPA had not offered any concrete timeline for the review, rendering the hold indefinite.  The court rejected this argument, but did order the EPA to file status reports regarding its review every 60 days.

The precise fate of the rule is still uncertain, but it is likely it will be greatly rolled back, if not eliminated entirely.  EPA administrator Scott Pruitt has a long history fighting against precisely this kind of regulation of the oil and gas industry.  After President Trump’s decision to pull American out of the Paris Agreement, it is difficult to imagine the EPA leaving anything more than the bare minimum of the rule in effect.

By statute, North Carolina has capped the monetary awards available for nuisance claims related to agricultural or forestry operations. The law, H.B. 467, was designed to protect hog farms and other concentrated animal feeding operations (CAFOs) from substantial judgments in odor nuisance lawsuits.   It limits compensatory damages to the reduction in the fair market value of the plaintiff’s property, if the nuisance is found to be permanent, and the diminution of the fair rental value of the property if temporary. The bill passed over the veto of Governor Roy Cooper.

The limits on awards set by H.B. 467 are cumulative. A subsequent action by the same plaintiff or a successor to plaintiff is restricted to the fair market value of the property, less what was recovered in the earlier lawsuit. The limit applies even to lawsuits against separate defendants arising from distinct operations. H.B. 467 does not, however, place limits on available punitive damage awards or bar any otherwise available injunctive relief.

North Carolina joins a handful of other states that have passed similar legislation in recent years aimed at limiting the amount of damages available for agriculture related nuisance claims.

The legislation is a reaction to an increase in odor nuisance lawsuits in North Carolina and elsewhere in the country. In 2013, more than 400 plaintiffs filed nuisance lawsuits against Murphy-Brown, LLC, a subsidiary of Smithfield Foods, Inc., the largest pork producer in the world. Some of those cases are still pending. An early version of the bill would have had retroactive application and limited recovery in the suits that have not been resolved. That provision, however, was changed before the bill passed.

H.B. 467 is a continuation of legislative efforts to insulate the North Carolina livestock industry. A 2013 bill, S.L. 2013–314, amended the state’s right-to-farm law, which prevents operations from becoming a nuisance as a result of changes in the surrounding community. Agricultural facilities cannot benefit from right-to-farm protections if they undergo a fundamental change from previous operations. But the law broadly exempts several categories of changes – including changes in size and technology – greatly curtailing plaintiffs’ recourse against expanded and updated CAFOs.

Collectively, these changes will make it much more difficult for plaintiffs to recover in nuisance actions against North Carolina CAFOs in the future, and will likely turn off many plaintiffs’ lawyers from investing the time and resources into even winnable cases.

A federal district court in Indiana recently ruled on whether email communications with environmental contractors hired by an attorney are protected from discovery. In Valley Forge Ins. Co. v. Hartford Iron & Metal, Inc., No. 1:14-cv-00006-RLM-SLC, 2017 WL 1361308 (N.D. Ind. April 14, 2017), the Court held that the communications were not protected by the attorney-client privilege, but were, in part, protected by the work-product doctrine.  This decision provides much-needed guidance to lawyers when retaining environmental consultants on behalf of their clients.

The Valley Forge litigation involved a dispute between the owner of a scrap metal recycling facility and its insurer over a settlement agreement relating to an environmental clean-up at the insured’s property.  The settlement agreement allocated responsibilities for the clean-up pursuant to an agreed order with the Indiana Department of Environmental Management (IDEM).  USEPA also later asserted enforcement claims against the defendant.

Following these claims, the defendant’s attorney hired two environmental consultants – one to design a stormwater management system to treat PCB-contaminated stormwater and another to perform site remediation.  The attorney initially retained both consultants directly, with the defendant’s approval; however, the defendant was found to have later entered into a standard construction contract directly with one of the contractors.

The Court performed an in camera review of 185 emails or email threads with the environmental contractors that the defendant had withheld as privileged in response to discovery requests by the plaintiff.  Applying Indiana law, the Court held that none of the emails were protected by the attorney-client privilege.  The Court stated that, while the “attorney-client privilege can extend to consultants hired by the attorney on behalf of a client,” only communications made for the “primary purpose” of obtaining legal advice from the lawyer come within the attorney-client privilege.  These protected communications can include reports made by third parties from gathering information from the client, where the primary purpose of the report is to assist a lawyer in giving legal advice.

In this case, the Court held that that the primary purpose in retaining the environmental contractors was not to provide legal advice, but to provide environmental remediation services.  The Court further held that the attorney’s retention of the contractors, by itself, was not sufficient to bring the contractors within the scope of the attorney-client privilege, nor was labeling the communications as “privileged and confidential” or “attorney-work product.”

The Court then addressed whether the communications were protected by the attorney work-product doctrine, applying federal law.  The Court noted that the doctrine is “distinct from and broader than the attorney-client privilege,” and applies to documents prepared in anticipation of litigation by any representative of the client, “regardless of whether the representative is acting for the lawyer.”  The primary motivating purpose must be to “aid in possible future litigation.”

The record in this case supported the defendant’s claim that the motivating factor to complete the clean-up of its facility was the threat of litigation with IDEM and USEPA.  All of the emails at issue were created after the lawsuit was filed and after the parties became aware of the claims by IDEM and USEPA.  The fact that the emails also served an ordinary business purpose of completing the environmental remediation did not deprive them of their protection under the doctrine because the defendant was able to show that the anticipated litigation was the driving force behind the preparation of the requested documents.

In performing the in camera review, the Court declined to extend the protections of the work product doctrine to transmittal communications that did not contain any attorney comment, impressions or strategy, billing records or emails that merely pertained to administrative, logistical or scheduling matters.  The rest of the emails were held to be protected by the work-product doctrine.

 

A North Carolina appeals court has ruled that a company may be an “operator” of a hazardous waste disposal facility under RCRA Subtitle C based solely on post-closure involvement at the site.

The case, WASCO LLC v. N.C. Dep’t of Env’t & Nat. Res., Div. of Waste Mgmt., No. COA16-414, 2017 BL 125671 (N.C. Ct. App. Apr. 18, 2017), involved a former textile manufacturing facility. The site became contaminated after perchloroethylene (PCE), a dry-cleaning solvent leaked, from underground storage tanks. At the time the leaks occurred the site was owned by a division of Winston Mills, Inc. Five years after the leaks, Winston Mills entered into an agreement with the North Carolina Department of Environment and Natural Resource that detailed a plan to close the site, and the site was closed three years later. Defendant-petitioner WASCO LLC first became involved at the site years later, when it acquired a company that co-guaranteed indemnification for environmental liabilities at the site.   It subsequently took some action to affirmatively remediate the site and applied for a RCRA Part A permit.

By 2007, however, North Carolina discovered that hazardous waste was migrating offsite and contaminating groundwater. At that time WASCO disclaimed responsibility for further remediation and asserted that all previous involvement had been on a voluntary basis. It could not be an operator, it argued, because it did not become involved with the site until after it was closed and it is impossible to operate a closed site. WASCO asserted that it was not an “operator” under the language of the North Carolina Solid Waste Management Act, which defines the term as “any person, including the owner, who is principally engaged in, and is in charge of, the actual operation, supervision, and maintenance of a solid waste management facility and includes the person in charge of a shift or periods of operation during any part of the day.” N.C. Gen. Stat. § 130A-290(a)(21).

The court rejected WASCO’s arguments. It held that WASCO must be an operator despite its late involvement because the site was not designated as a disposal facility until after the site was closed. Accepting WASCO’s interpretation that operators are only entities responsible for pre-closure activities would, at least in this case, mean that the facility would have no operators at all. It also found that the trial court properly looked not only to the definition of operator in the North Carolina statute, but also at the broader definition in CERCLA, in addition to cases and guidance related to CERCLA and RCRA. These sources, it reasoned, are hazardous waste specific, while North Carolina’s more detailed definition applies to all solid waste management facilities.

Although the belated designation of the site as a hazardous waste disposal facility on account of the unintentional release of PCE distinguishes it from typical RCRA Subtitle C landfills, it is far from clear that this distinction was dispositive for the court. More likely it was guided by the principle of broad liability under RCRA, particularly when hazardous waste is involved.

The Office of Management and Budget (OMB) recently released a guidance document on the subject of President Trump’s January 30, 2017 executive order, EO 13771, titled “Reducing Regulation and Controlling Regulatory Cost.”  That executive order garnered a great deal of attention with its bold but simplistic decree that “[u]nless prohibited by law, whenever an executive department or agency publicly proposes for notice and comment or otherwise promulgates a new regulation, it shall identify at least two existing regulations to be repealed.”  OMB’s guidance provides some insight into how that ambitious deregulatory agenda might operate in practice.  Not surprisingly, a closer look at EO 13711 and OMB’s guidance reveals that a significant rollback of the regulatory state is not likely imminent.  Instead, the regulation may push agencies to search out and eliminate minor, archaic regulations that remain on the books but have little or no effect on the regulated community.

EO 13771 requires that any incremental costs associated with a new regulatory action shall be offset by the elimination of existing costs associated with at least two prior regulations.  Although this language appears to require a net reduction in regulatory impacts, OMB has interpreted it in a way that will almost certainly not.

OMB’s guidance provides that “[i]n general, executive departments or agencies may comply with those requirements by issuing two EO 13771 deregulatory actions…for each EO 13771 regulatory action.”  Regulatory actions and deregulatory actions, however, are not two equal sides of the same coin.  Regulatory actions are only “significant regulatory actions as defined in Section 3(f) of EO 12866…” and significant guidance documents.  EO 12866 significant regulatory actions are those that have an annual effect on the economy of over $100 million or have other substantial impacts.  While only significant regulatory actions need to be offset, the “deregulatory actions” that they may be offset by need not be “significant.”

The impact of the requirement that any “new incremental costs associated with new regulation” be offset by the elimination of existing costs is also weakened by OMB’s guidance.  “Incremental costs” are not simply the costs of compliance for the regulated community.  Rather, “total incremental costs” are the sum of all costs minus all “cost savings.” As the guidance recognizes,  “[t}here are several types of impacts that…could be reasonably categorized as either benefits or costs, with the only difference being the sign (positive or negative) on the estimates.”  In other words, in many situations agencies may simply categorize the benefits of the regulatory action as “negative costs” and thereby internally reduce a regulation’s “new incremental costs.” Although the guidance says “agencies should conform to the accounting conventions they have followed in past analyses” when accounting for costs and benefits, an increased labeling of regulatory benefits as “negative costs” may be an appealing way for agencies to work around EO 13771.

Taken together, these two components of the guidance suggest we should expect to see few if any major regulations undone, even as new significant regulatory actions are promulgated.

The requirement that significant regulatory action be tied to some sort of deregulatory action may send agencies looking into the archives to see what outdated, insignificant regulations can come off the books.  There is value to that.  But do not expect EO 13771 to spur the deconstruction of the administrative state the administration has promised.

The rollback of the controversial Waters of the United States (WOTUS) Rule is underway.  Last week, President Trump issued an Executive Order directing the Environmental Protection Agency (EPA) and the Department of the Army (Army) to review and rescind or rewrite the WOTUS rule, which was adopted in 2015 by the previous administration.  That rule was intended to clarify which waterways the EPA and Army can regulate under the Federal Clean Water Act (CWA), which requires a federal permit for the discharge of pollutants into “navigable waters,” defined as “waters of the United States.”  The CWA expressly reserved jurisdiction over non-navigable waters to the states.

The question of what is a “water of the United States” has generated considerable uncertainty for the states, small businesses, agricultural communities, developers and environmental organizations.  The federal agencies have been increasingly exercising federal jurisdiction over small waterways, ditches and ponds, and had been rebuked in 2001 and 2006 by the U.S. Supreme Court for attempting to expand federal regulation to non-navigable waters.  In the 2006 decision, Rapanos v. United States, 547 U.S. 715 (2006), Justice Scalia wrote for the plurality opinion and very adeptly summarized the burden of federal regulation on those who would deposit fill material in locations designated as “waters of the United States”:

In deciding whether to grant or deny a permit, the U. S. Army Corps of Engineers (Corps) exercises the discretion of an enlightened despot, relying on such factors as “economics,” “aesthetics,” “recreation,” and “in general, the needs and welfare of the people.” . . .  The average applicant for an individual permit spends 788 days and $271,596 in completing the process, and the average applicant for a nationwide permit spends 313 days and $28,915—not counting costs of mitigation or design changes. . . . In this litigation, for example, for backfilling his own wet fields, Mr. Rapanos faced 63 months in prison and hundreds of thousands of dollars in criminal and civil fines.

The WOTUS rule was an attempt to better define the scope of “waters of the United States” in light of these decisions, but was seen by property right advocates as a massive power grab by the federal agencies, as it gave federal authority over small waterways, such as wetlands, headwaters, small ponds and, as stated by President Trump during the Executive Order signing ceremony, “puddles.”  The rule was challenged by over 30 states.  The U.S. Court of Appeals for the 6th Circuit issued a nationwide stay of the rule on October 15, 2015, pending further action of the court.

The Executive Order does not change anything immediately, because the rule is already on hold and it could take years for the EPA and Army to roll it back through a formal regulatory process.  The EPA and Army issued a Notice of Intent that was published in the Federal Register on March 6th, announcing their intention to review the rule through a new rulemaking.   The EPA Acting General Counsel also sent a letter to Attorney General Jeff Sessions that day informing Mr. Sessions of the pending review, so that this information could be used to inform the courts of the review in any litigation involving the WOTUS rule. The Executive Order directed the EPA and Army to consider interpreting the term “navigable waters” in a matter consistent with the plurality opinion of Justice Scalia in Rapanos.  If that is the case, then the EPA and Army will be regulating “only those relatively permanent, standing or continuously flowing bodies of water ‘forming geographic features’ that are described in ordinary parlance” as “streams,” “oceans,” “rivers,” “lakes,” but not puddles.

President Trump promised on the campaign trail that he would repeal the WOTUS rule, as well as the Obama administration’s Clean Power Plan.  With his record of checking off campaign promises, we should expect an Executive Order shortly instructing the EPA to begin the process of dismantling the Clean Power Plan, as well.

Nine trade associations, including the American Chemistry Council, the American Petroleum Institute, and the American Forest & Paper Association, have filed a Petition for Review challenging the EPA’s Hazardous Waste Generator Improvements Rule.  The rule was developed by the Obama Administration and was not finalized until after the election, on November 28, 2016.  It is not scheduled to become effective anywhere in the country until May 30, 2017, at the earliest.

The primary purpose of the rule was to reorganize existing regulations applicable to hazardous waste generators to make them more user-friendly.  The rule also clarifies ambiguities in the existing regulations.  It will, however, have significant impacts on some hazardous waste generators.  For more information on substance of the Hazardous Waste Generator Improvements Rule, see our earlier post here.

The Petition for Review does not state which portions of the rule the associations seek to eliminate, nor does it articulate the substantive basis for their challenge. The petitioners did, however, submit comments on the proposed rule, which shed light on which requirements they find most concerning and the arguments they are likely to make before the Court.  In those comments, they listed as the most objectionable part of the rule EPA’s position that any violation of a condition for exemption subjects the generator to all of the applicable rules for non-exempt facilities.  As a result, a generator that runs afoul of a condition for exemption could as a result be subject to penalties for not complying with dozens of requirements that apply to the next higher level of generator, or even those that apply only to treatment, storage and disposal facilities.

The petitioners are also likely to focus their challenge on the portion of the rule that for the first time formally incorporates the requirement that hazardous waste determinations be made at the point of generation, before any dilution, mixing or other alteration of the waste occurs.

We will be following this petition and providing updates on Environmental Law Next as the challenge progresses.

On February 16th, President Trump signed a bill repealing the so-called stream protection rule, which was designed to prohibit dumping of debris from mountaintop removal mining into valleys and streams below the mining activity. The rule was promulgated by the Office of Surface Mining Reclamation and Enforcement (OSMRE) and went into effect on January 19th, the day before President Trump took office. In early February, the House and Senate passed the bill, using a repeal mechanism in the Congressional Review Act (CRE). The CRE was passed under Speaker Gingrich during the Clinton Administration and had been used only once before Trump became president.

The stream-protection rule was supported by environmentalists and opposed by the mining industry. Environmentalists have few options at this time. They could seek to beef up stream protection in the states, but mining states, where enforcement would have the most effect, are not likely to support such a measure. Or they could challenge the CRE in court, but the courts would be expected to give deference to the CRE, particularly because Congress delegates authority to administrative agencies to promulgate regulations and presumably has the authority to repeal them.

Environmentalists will probably have to wait until there is a democrat in the White House, but even then, the CRE prohibits agencies from passing regulations that are “substantially the same” as the regulations repealed under the CRE. Therefore, any future stream-protection regulations from the OSMRE would likely encounter a legal challenge on the basis of substantial similarity.

At the end of the day, the best hope for environmentalists would be a Democratic Congress that would impose stream protection measures directly by statute.

The EPA announced today that it is delaying the effective date of all regulations that have been published in the Federal Register but are not yet effective.  There are 30 such regulations, all of which are now scheduled to become effective on March 21, 2017.  The action was taken to comply with the White House’s “Regulatory Freeze Pending Review” memorandum, which was issued to the heads of all executive departments on the day President Trump was inaugurated.

The 60 day period “is necessary to give Agency officials the opportunity for further review and consideration of new regulations,” according to the rule.

The Agency’s action was taken without public comment pursuant to the good cause exceptions to the Administrative Procedures Act.  5 U.S.C. §553(b)(B) allows the administration to forgo regular notice and comment procedures when they are “impracticable, unnecessary, or contrary to the public interest.”

The rule adding a Subsurface Intrusion (SsI) component to the CERCLA Hazard Ranking System (HRS), which we wrote on two weeks ago, is among those affected by this action.  It was set to become effective on February 8, 2017.

The Agency specifically left open the possibility of delaying implementation of some affected regulations beyond March 21, 2017.