A Triad of Recent Decisions Limit Enforcement of the Clean Air Act’s PSD Permit Requirement
By Larry Kane, Attorney, Bingham Greenebaum Doll LLP
Since early July, 2013, three decisions have emerged from the federal courts which, in varying degrees and somewhat inconsistently, establish limits on government enforcement of the preconstruction permit requirement of the Clean Air Act’s (CAA’s) Prevention of Significant Deterioration (PSD) program. Careful attention should be paid to the factual circumstances of each decision which significantly affect the respective results. The three include: U.S. v. Midwest Generation, LLC, 720 F.3d 644 (7th Cir. July 18, 2013) (hereinafter Midwest Gen 3); U.S. v. EME Homer City Generation, L.P., 2013 U.S. App. LEXIS 17477 (3rd Cir. August 21, 2013) (hereinafter EME Homer City); and U.S. v. U.S. Steel Corp., 2013 U.S. Dist. LEXIS 118513 (N.D. Ind. August 21, 2013) (hereinafter U.S. Steel).
Midwest Generation. The Seventh Circuit Court of Appeals’ pithy decision in Midwest Gen 3, involved a judicial enforcement action brought by the federal government and the State of Illinois against Midwest Generation, LLC, the current owner of five coal-fired power plants, whose previous owner, Commonwealth Edison, made modifications without a PSD permit ten years or more before the enforcement action was initiated. It was assumed for purposes of the litigation that the modifications had been major modifications subject to the PSD requirements of the CAA. The Seventh Circuit’s decision responds to an appeal of the district court’s 2010 decision dismissing government claims for civil penalties and injunctive relief for PSD violations arising from the former owner’s modifications. U.S. v. Midwest Generation, LLC, 694 F.Supp.2d 999 (N.D. Ill. 2010) (Midwest Gen 1). The prior history also includes a second district court decision, U.S. v. Midwest Generation, LLC et al., 781 F.Supp.2d 677 (N.D. Ill. 2011) (Midwest Gen 2), which dismissed all PSD-related claims against Consolidated Edison raised in an amended complaint and addressed other matters. Midwest Gen 2 does not appear to have been before the Seventh Circuit in Midwest Gen 3, even though Consolidated Edison has been added to the caption.
In assessing the potential liability of the current owner for the allegedly illegal plant modifications by the former owner, the appellate court focused on the statute of limitations as it applied to potential PSD liability of the former owner, stating that “Midwest cannot be liable when its predecessor in interest would not have been liable had it owned the plants continuously.” Midwest Gen 3, 720 F.3d at 646. The court ultimately found that the modifications, having commenced more than five years before the federal government filed the judicial enforcement action, were not unlawful due to the passing of the applicable statute of limitations and that neither the former owner or the new owner are subject to liability under CAA § 7475.
Three salient rulings in Midwest Gen 3 were critical to its ultimate holding. First, based on Gabelli v. SEC, 133 S.Ct. 1216 (2013), the court found that the five-year period of the applicable statute of limitations (28 U.S.C. §2462) was not extended (or tolled) by any time period involved in discovering the occurrence of the plant modifications that allegedly violated the PSD permitting requirements of 42 U.S.C. §7475(a).
Second, the governments’ attempt to circumvent the problem posed by Gabelli – an argument that the failure to obtain a PSD construction permit under 42 U.S.C. §7475(a) is a continuing violation rather than a one-time violation – was rebuffed by the court. The court observed that, “The violation is complete when construction commences without a permit in hand. Nothing in the text of §7475 even hints at the possibility that a fresh violation occurs every day until the end of the universe if an owner that lacks a construction permit operates a completed facility.” 720 F.3d at 647. Accord., Sierra Club v. Otter Tail Power Co., 615 F.3d 1008 (8th Cir. 2010), and Nat’l Parks and Conservation Ass’n v. Tennessee Valley Auth., 502 F.3d 1316 (11th Cir. 2007).
Finally, the court rejected the government’s contention that a continuing injury consisting of higher emissions from the failure to install BACT warranted relief notwithstanding expiration of the statute of limitations:
Plaintiffs’ contention that a continuing injury from failure to get a preconstruction permit (really, from failure to use [best available control technology (BACT)]) makes this suit timely is unavailing. . . . Today’s emissions cannot be called unlawful just because of acts that occurred more than five years before the suit began. Once the statute of limitations expired, Commonwealth Edison was entitled to proceed as if it possessed all required construction permits. That’s the point of decisions such as United Air Lines, Inc. v. McMann, 434 U.S. 192 (1977); Ledbetter v. Goodyear Tire and Rubber Co., 550 U.S. 618 (2007).
720 F.3d at 648.
While the Seventh Circuit’s decision is somewhat obscure on the point, it seems to imply that the court considered the expiration of the statute of limitations to have effectively precluded the government’s claims for injunctive relief against Midwest Generation. This inference derives from the fact that the decision unqualifiedly affirmed Midwest Gen 1, which had dismissed all PSD claims, including those for injunctive relief as well as for civil penalties. It may be further inferred from the above quoted excerpt from the decision that, although PSD permits were assumed to have been required by the CAA for the plant modifications, the court found the expiration of the statute of limitations to mean that the former owner should be viewed as possessing the required PSD permits, such that there no longer is a permitting deficiency requiring correction.
EME Homer City. The facts of the EME Homer City decision bear some resemblance to the Midwest Gen 3 decision. A coal-fired power plant was constructed in Pennsylvania in the 1960s by its former owners, the Pennsylvania Electric Company and the New York State Electric & Gas Corporation. The former owners allegedly made a series of four major modifications to the power plant from 1991 through 1996 without seeking a PSD permit, since they believed the modifications to be exempt from permitting as routine maintenance. In 1999, the former owners sold the power plant to EME Homer City Generation, L.P. The plant’s former owners applied for a Title V operating permit for the plant in 1995 but the permit was not issued until 2004. The Title V permit did not include BACT limits or other PSD-related provisions since the former owners had not believed PSD to be applicable to the plant modifications and did not include such information in the application for the Title V permit. In 2008, EPA notified EME Homer City Generation and the former owners of alleged violations of PSD and Title V permit requirements. Finally, in 2011, EPA initiated a judicial enforcement proceeding against the current and former owners.
EPA asserted that the former owners had violated the PSD program by modifying the power plant without first obtaining a PSD permit and without installing BACT and had violated Title V by submitting an incomplete application that omitted information about the plant modifications and BACT requirements. The current owners were alleged to have violated the PSD program by operating the plant after it had been modified without a PSD permit or BACT controls and to have violated Title V by operating pursuant to a facially valid but defective operating permit due to the PSD program omissions.
The Third Circuit resolved EPA’s claims in the following manner. As to the PSD claims against the current owners, the court observed that these claims “rise or fall on the answer to a single question: Does the PSD program prohibit operating a facility without BACT or a PSD permit?” 2013 U.S. App. LEXIS 17477, at *21. Agreeing with three other courts of appeals – the Seventh Circuit in Midwest Gen 3, the Eighth Circuit in Sierra Club v. Otter Tail Power Co., supra, and the Eleventh Circuit in Nat’l Parks Conservation Ass’n v. Tennessee Valley Auth., supra, the Third Circuit held that the plain text of 42 U.S.C. § 7475(a) reveals that, “The violation is complete when construction [or modification] commences without a permit in hand.” Midwest Gen 3, 720 F.3d at 647. The court also found that the language of the Pennsylvania state implementation plan (SIP) parallels that of the CAA, thus distinguishing the case from the Sixth Circuit’s decision in Nat’l Parks Conservation Ass’n v. Tennessee Valley Auth., 480 F.3d 410, 419 (6th Cir. 2007), which found Tennessee’s SIP to contain language making BACT compliance an express operational requirement. Finally, while remarking in dicta that EPA could have obtained an injunction requiring compliance with PSD requirements had the former owners still owned the power plant, the court held that no such injunctive relief could be had against the current owners who did not construct or modify the plant.
With respect to EPA’s PSD claims against the former owners, the court never directly addresses EPA’s civil penalty claims, perhaps considering it obvious that such claims were without merit, given the running of the statute of limitations. However, this result may be inferred from the fact that the court of appeals affirmed the district court’s dismissal of all claims. The appellate court expressly affirmed the dismissal of EPA’s claims for injunctive relief against the former owners on the ground that “the Clean Air Act does not authorize an injunction against former owners and operators for a wholly past PSD violation, even if that violation causes ongoing harm.” 2013 U.S. App. LEXIS 17477, at *45. This conclusion followed an extended textual analysis of the language of 42 U.S.C. § 7413(a)(5) and (b)(1) – (3).
Turning to EPA’s claims for relief stemming from the alleged violations of the Title V permit program, the Third Circuit affirmed the district court’s dismissal of those claims against both the former owners and the current owners, based on its conclusion that the district court lacked jurisdiction over these claims. This conclusion derived from the language of Title V of the CAA, which the court observed to “[channel] challenges to applications and permits into an administrative review process that is reviewable exclusively by the courts of appeals, not collaterally in civil or criminal enforcement actions in the district courts.” 2013 U.S. App. LEXIS 17477, at *60-61. Succinctly put, 42 U.S.C. § 7661d(b) provides an administrative review process in which any person may timely petition the Administrator to object to issuance of a permit for specific defects alleged in the permit if the Administrator has failed to object to the permit. A denial of such a petition by the EPA Administrator is subject to judicial review under 42 U.S.C. § 7607. As the court observes, § 7607(b)(1) specifies that actions for judicial review of actions of the Administrator must be filed in the appropriate court of appeals.
Since the EPA is seeking to enforce Title V requirements, one might wonder why the court is detouring through the permit review provisions of Title V. The answer to this question lies with the fact that the EPA enforcement action against EME Homer City is predicated on allegations that the Title V permit is defective in not including PSD-related provisions for the unpermitted plant modifications. Importantly, § 7607(b)(2) provides that “Action of the Administrator with respect to which review could have been obtained under paragraph (1) [§ 7607(b)(1)] shall not be subject to judicial review in civil or criminal proceedings for enforcement.” In other words, an enforcement proceeding may not be used to collaterally attack the validity of a Title V permit when a direct challenge to the validity of the permit could have been had by petitioning the Administrator to object to the permit and to seek judicial review of a denial of such a petition by the Administrator. The court refers to this prohibition on collateral attacks on a Title V permit’s validity as Congress’ creation of a “use it or lose it” provision regarding the opportunity for review of “the EPA’s failure to object to a proposed Title V permit” (citing Romoland School Dist. v. Inland Empire Energy Center, LLC, 548 F.3d 738, 754-55 (9th Cir. 2008)). The full depth of meaning of the “use it or lose it” characterization of § 7607(b)(2) is made clear by the following statement of the Romoland court:
This . . . provision . . . does not bar enforcement proceedings only where an individual has taken advantage of the opportunity to petition the EPA Administrator and then appeals the denial of such a petition to the applicable appellate court; instead, judicial review through civil or criminal proceedings is unavailable whenever an individual ‘could have . . . obtained’ such review.
Id., (emphasis added). Thus, the Third Circuit found the district court to have lacked jurisdiction to hear the EPA’s allegations concerning a deficient Title V permit. Interestingly, though, after including a quote from the Otter Tail Power Co. decision on the importance of protecting finality in permit terms by barring collateral attacks on Title V permits, the EME Homer City court goes on to remark, in dicta, that the exclusive review process of 42 U.S.C. §§ 7661d and 7607(b) for Title V permits does not “prevent the EPA from correcting deficiencies in a permit application or from fixing an inadequate Title V permit”, even if the deficiencies were overlooked and not discovered until after the permit is issued. 2013 U.S. App. LEXIS 17477, at *70.
U.S. Steel. The U.S. Steel decision involves much simpler facts. U.S. Steel performed a relining of one of its blast furnaces at its Gary Works in 1990 without seeking a PSD permit, also under the belief that no permit was required for this activity (presumably on the basis that the relining was routine maintenance). EPA later contended that the furnace relining was a major modification of the source and filed a judicial enforcement proceeding in 2012 in the U.S. District Court for the Northern District of Indiana. With respect to the Title V operating permit U.S. Steel applied for in 1996 and received several years later, EPA alleged that the permit was defective and that U.S. Steel was operating the relined furnace in violation of Title V requirements. EPA sought both civil penalties and injunctive relief in the enforcement action. The court dismissed EPA’s claims for civil penalties, finding that they were time-barred by the statute of limitations (28 U.S.C. § 2462), adopting the legal analysis provided by the Seventh Circuit in Midwest Gen 3, supra. Of note, the court also found that Indiana’s SIP was consistent with § 7475 in making an NSR violation a one-time violation.
A different result was reached by the court concerning EPA’s claim for injunctive relief. The court ultimately concluded that EPA was not time-barred from seeking injunctive relief for the alleged NSR violations by the passing of the statute of limitations. Before reaching that conclusion, the court first determined that the statute of limitations did not expressly apply to injunctive relief of a remedial type sought by EPA and subsequently rejected the concurrent remedy doctrine as a defense to injunctive relief as contended by U.S. Steel. (In its essence, this doctrine holds that equitable relief that would be based on the same facts as legal remedies that are barred by a statute of limitations is also barred.) Remarkably, after observing that an extensive analysis by the court had revealed irremediable flaws in the seminal precedent for the position that the concurrent remedy doctrine cannot be invoked against the United States when acting in its governmental capacity, the court nonetheless concluded – solely on a public policy basis – that the concurrent remedy doctrine cannot be allowed to prevent the government from seeking injunctive relief in its enforcement capacity. The court did not explain how this conclusion squared with the Seventh Circuit’s concluding comments in Midwest Gen 3 that “Today’s emissions cannot be called unlawful just because of acts that occurred more than five years before the suit began. Once the statute of limitations expired, Commonwealth Edison was entitled to proceed as if it possessed all required construction permits.” 720 F.3d at 648.
Recapitulation. The combined results of the three decisions can be summarized as follows.
Application of the Statute of Limitations to PSD Violations. Both Midwest Gen 3 and U.S. Steel held that: (i) no discovery rule is applicable for the statute of limitations (28 U.S.C. § 2462) that pertains to EPA’s claims for civil penalties for alleged PSD violations; and (ii) that the alleged violations consisting of the alleged failure of the defendants to obtain a PSD permit and to install BACT controls for major modifications of a major source were one-time violations that occurred at the time of commencement of construction and were not continuing violations, such as for operation of the source after construction. Midwest Gen 3 further found that any claim of continuing injury from such alleged PSD violations did not toll the statute of limitations and that, once the statute of limitations expired, operation of the modified source was lawful with respect to the CAA’s PSD requirements (42 U.S.C. § 7475) as if the source had obtained all required PSD permits. (EPA did not seek civil penalties against the former owners in EME Homer City due to expiration of the statute of limitations.) The Third and Seventh Circuits took different approaches in finding that no PSD liability applied to the current owners of the modified sources, who had acquired the sources after the modifications were completed. The court in Midwest Gen 3 observed that there would be no liability for the current owners if the former owners were not liable for the unpermitted modifications. EME Homer City, on the other hand, found that the current owners could not be liable for violations of 42 U.S.C. § 7475 since they did not make the modifications and § 7475 does not apply merely to operation of a source modified without a required PSD permit.
Availability of Injunctive Relief for PSD Violations After Expiration of Statute of Limitations. The Midwest Gen 3 decision did not expressly address the availability of injunctive relief although the court’s broadly stated denial of any relief for a claim of continuing injury associated with the alleged PSD violations and its unqualified affirmation of the district court’s dismissal of all claims seems incompatible with prospective injunctive relief. In EME Homer City, the court found that the current owners were not subject to claims for injunctive relief since they did not perform the source modifications. The court further held that the text of the CAA “does not authorize an injunction against former owners and operators for a wholly past PSD violation, even if that violation causes ongoing harm.” However, in dicta, the court also opined that the former owners and operators could have been subject to injunctive relief, even though the statute of limitations had expired, if the transaction had not occurred and they remained the current owners and operators. After an extensive statutory interpretation analysis, the court in U.S. Steel concluded that EPA was not barred from pursuing a claim for injunctive relief against the defendant, regardless of the expiration of the statute of limitations, relying solely on public policy grounds that the government should not be precluded from the opportunity to procure compliance with the CAA’s obligations.
Application of the Statute of Limitations to Title V Violations. Claims by EPA concerning alleged Title V violations were not before the Midwest Gen 3 court. In U.S. Steel, the district court held that the expiration of the statute of limitations also bars claims for civil penalties for alleged violations of Title V requirements of the CAA that derive from the alleged PSD violations. The EME Homer City court took a much different approach to the alleged Title V violations, affirming the trial court’s dismissal of all Title V claims raised by EPA against the former owners and current owners for the reason that these claims were actually challenging the sufficiency of the Title V permit and the district court lacked jurisdiction to entertain a collateral attack on the validity of a Title V permit. Nonetheless, the court stated that the EPA would not be precluded from correcting the alleged permit defects.
Availability of Injunctive Relief for Title V Violations. Claims by EPA concerning injunctive relief for alleged Title V violations were not before the Midwest Gen 3 court and were not expressly addressed by the U.S. Steel court. Dismissal of such EPA claims was affirmed by the EME Homer City court for the same reasons as for the claims for civil penalties for Title V violations.
The decisions of all three courts appear consistent on the core issue of the manner of application of the federal statute of limitations to claims of civil penalty liability for alleged PSD violations. On the question of availability of injunctive relief concerning PSD claims for which the statute of limitations has expired, both the Third Circuit, in dicta, and the Northern District of Indiana indicated that EPA could pursue such relief. A different result appears implied by the Seventh Circuit’s decision. Marked differences in legal reasoning were expressed by the Third Circuit and the Northern District of Indiana on the fate of EPA claims for civil penalties and injunctive relief for alleged violations of Title V amounting to implicit challenges to the sufficiency of Title V permits regarding PSD shortcomings. This issue was not before the Seventh Circuit.
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