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.

Two recent rulings denying motions to remand in chemical exposure cases by demonstrate that a complaint must contain sufficient facts to show legitimate claims against all parties.  A failure to properly plead causes of action allows a federal court to conclude a claim does not exist and therefore maintain jurisdiction over the case under the doctrine of fraudulent joinder.  

Bayer CropScience LP was sued by two individuals who live near the Institute, West Virginia, plant and who claim illness as a result of exposures during a ten day period in 2009. Sue Ferguson Davis v. Bayer AG, et al., Civil Action No. 2:11-cv-00879 and Donna Willis v. Bayer AG, et al., Civil Action No. 2:22-cv-00880.  Both filed virtually identical complaints in state court naming Bayer CropScience and others, including West Virginia Paving, Inc., a West Virginia corporation, as defendants.  The plaintiffs claimed exposure to toxic fumes “negligently released into the atmosphere..." caused a variety of personal injuries.  Bayer CropScience removed the cases to federal court arguing that both Complaints did not contain particular factual allegations justifying claims against the non-diverse party, West Virginia Paving.  Inclusion of that company as a defendant destroyed diversity, precluding removal to federal court.  Both plaintiffs filed motions to remand.

On the issue of diversity jurisdiction the Court found all of the defendants except West Virginia Paving were from different states or countries than the two West Virginia plaintiffs.  Only if West Virginia Paving was fraudulently joined to prevent federal jurisdiction, could the case remain in federal court.

Recognizing well-settled law, Judge Joseph R. Goodwin explained that the doctrine of fraudulent joinder allows federal courts to disregard the citizenship of non-diverse defendants for jurisdictional purposes.  A heavy burden is placed on parties who seek federal jurisdiction, as they must demonstrate there is “no possibility” that plaintiff can establish a case against the in-state defendant or there is outright fraud in the facts pled in the complaint.  

The judge concluded the complaints lacked even a “glimmer of hope” of establishing claims against West Virginia Paving and denied remand in both cases.  He found the complaints simply did not link West Virginia Paving to the specific chemical leak described in both complaints, and concluded (as admitted by plaintiffs) that “West Virginia Paving’s conduct could not have caused the plaintiff’s injuries, ….because [it] was not operating a chemical facility at any point around that date.” Without West Virginia Paving as a defendant, there was complete diversity between the parties, and the court therefore denied plaintiffs’ motion to remand.

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. 

On Monday, January 9, 2012, the Supreme Court heard argument in a case challenging the Environmental Protection Agency’s issuance of administrative compliance orders under the Clean Water Act, 33 U.S.C. §§ 1251 et seq. (the “CWA”).  Sackett v. United States Environmental Protection Agency, No. 10-1062. 

Chantell and Mike Sackett bought a vacant lot near Priest Lake, Idaho, intending to build their home there.  The lot is zoned residential and is located in a platted subdivision, with sewer and water hookups.  Surrounding lots already have homes built on them.  The Sacketts applied for and obtained the necessary building permits from the local authorities.  Once they began laying gravel, however, they were hit with a compliance order from the EPA.  The order declared the Sacketts’ property to be “wetlands,” and charged the Sacketts with discharging pollutants into the waters of the United States, absent a permit, in violation of 33 U.S.C. § 1311(a).  In the order, the EPA 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 $37,500 per day. 

The Sacketts tried to challenge the wetlands finding – both before the EPA and in federal court under the Administrative Procedure Act, 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, the only way in which the Sacketts could obtain judicial review of the order would be to violate the order and then raise their arguments in any enforcement action brought by the EPA. 

Arguing on behalf of the Sacketts, Damien Schiff of the Pacific Legal Foundation stated that his clients’ inability to seek relief from the courts when the EPA issues a compliance order under the CWA amounts to a denial of due process.  The majority of the justices seemed sympathetic with his argument.  Justice Stephen Breyer, for example, later commented that not allowing judicial review of administrative actions would represent a “huge upheaval” of federal practice, because “for 75 years the courts have interpreted statutes with an eye towards permitting judicial review, not the opposite.”  Justice Elena Kagan, however, suggested that the Sacketts had not exhausted all of their administrative remedies and could have obtained a wetlands permit from the Army Corps of Engineers.  Mr. Schiff disagreed, stating that having to go through the wetlands permit process before a second agency was not an adequate remedy. 

Deputy Solicitor General Malcolm Stewart argued for the EPA, and stuck to the EPA’s position that the Sacketts’ property is a wetland and that the CWA precludes any judicial review of compliance orders.  The Court did not appear to be persuaded.  In particular, Justice Anthony Scalia and Justice Samuel Alito sharply criticized the EPA’s argument.  Justice Alito remarked at one point that “most ordinary homeowners would say this kind of thing can’t happen in the United States,” adding later that the EPA’s conduct is even more “outrageous” because it can change its mind at any time after issuing the compliance order.

The case is being closely watched by industry and public interest groups alike.  Fifteen different amicus briefs have been filed, fourteen of them in favor of the Sacketts – including briefs filed by the Chamber of Commerce, the State of Alaska and various trade and industry groups.  The media is describing the case as a fight between the “little guy” and big government.  We’ll find out if David or Goliath wins this fight when a decision is issued this spring.  The Court’s decision could impact not only CWA enforcement authority, but possibly also review of compliance orders issued under other federal environmental statutes. 

Carmen R. Toledo is a partner at King & Spalding in Atlanta, Georgia.  

(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. 

Truth, justice and industry prevailed today when the Supreme Court rejected the attempt by various states, New York City and several environmental groups to have the judicial system regulate the limits on green house gas emissions.  In American Electric Power Co. v. Connecticut (No. .10-174), the Supreme Court ruled (in an 8-0 decision) that it would leave the standard setting and green house gas emission controls to the experts.  Since the Clean Air Act and the associated regulations of the Environmental Protection Agency authorized by the Act provide the mechanism by which limits on emissions of carbon dioxide from domestic plants are addressed, "there is no room for a parallel track," and federal common law is not available as a way to sidestep this process.  The Supreme Court's decision overturns the ruling by the Second Circuit that permitted these same plaintiffs to proceed with these lawsuits against various electric utilities, which alleged that the defendants' green house gas emissions were considered a public nuisance that contributed to global warming.

Justice Ginsburg's opinion went on to explain that the system has its own checks and balances.  Specifically, once the limits are set, these same groups can then use the judicial system to challenge the limits. The Court relied on the fact that this process allows those that are best suited to make the determinations to do so. "It is altogether fitting that Congress designated an expert agency, here, EPA, as best suited to serve as primary regulator of greenhouse gas emissions. The expert agency is surely better equipped to do the job than individual district judges issuing ad hoc, case-by-case injunctions. Federal judges lack the scientific, economic, and technological resources an agency can utilize in coping with issues of this order."

The Supreme Court declined to address the state law nuisance claim, finding that its decision on the federal common law question precluded the need to do so.  Justice Sotomayor recused herself  since she was a member of the Second Circuit when it heard oral arguments in Connecticut v. American Electric Power Co.

Thus, for now, it appears that industry will need to keep its eyes on Congress and EPA to make the next move, since victory was achieved in the courtroom.

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.