This post is part of the Environmental Law Review Syndicate, a multi-school online forum run by student editors from the nation’s leading environmental law reviews.

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By John Bullock, Harvard Law School

Introduction

As the public has become more aware of the intense connection between the practices of electric utilities and greenhouse gas emissions, interested groups have shone a brighter spotlight on the regulation of utilities in the United States. Some have called on the Federal Energy Regulatory Commission (“FERC”) to take on a more environmentally conscious role when exercising their authority to set wholesale rates.[1] While FERC still hasn’t explicitly taken environmental considerations into wholesale rate setting, it has taken steps to continue to ensure reliability as the nation’s energy portfolio composition shifts.[2] 

Generally, under the Federal Power Act, FERC has jurisdiction over sales of electricity for resale in interstate commerce (wholesale sales), electricity transmission, and practices “affecting” rates.[3] The Supreme Court recently authorized a construction of FERC’s jurisdiction in FERC v. Electric Power Supply Association (“EPSA”) to include practices that “directly affect” wholesale rates.[4] This decision was seen as good for clean energy, as it removed barriers for demand response resources[5] to compete in the wholesale market in the short-term, while allowing FERC to have more regulatory flexibility in the long-term.[6]

At the state level, legislators and regulatory bodies generally retain the authority to set retail rates, maintain and site local facilities, and to establish resource portfolios.[7] There are a wide range of potential policies that can be used to foster clean energy, including feed-in tariffs,[8] renewable portfolio standards,[9] rebates for renewables,[10] a carbon tax,[11] a ban on carbon imports and new coal plant construction,[12] and net-metering policies.[13] A majority of states in the country have passed some form of a renewable portfolio standard mandating a certain percentage of the state’s electricity come from renewable resources.[14] These policies can originate in the state legislature or can come from the state utility regulator directly.[15] These state policies use several different regulatory tools, from market-based incentives like renewable energy credits to other state law mechanisms such as long-term power purchase agreements or mandated utility-owned renewable generation.

Some of these state clean energy policies have recently been challenged or are currently being challenged in the federal courts on preemption and dormant commerce clause grounds.[16] Challenges to these policies typically allege that the state programs are either preempted by the Federal Power Act, or are an impermissible intrusion into Congress’s exclusive power to regulate interstate commerce.

The Court, by authorizing an expansion of FERC’s jurisdiction in EPSA, and by failing to clarify the preemption analysis under the Federal Power Act in another recent case, Hughes v. Talen Energy Marketing LLC, may have inadvertently created considerable uncertainty about the extent of federal and state authority—or at least failed to remedy existing uncertainty. More thorough discussions on the shifting approach to the division of state and federal authority in energy law can be found elsewhere.[17] This Article will instead offer some speculation about the impacts of EPSA and Hughes on state policymaking.

1. FERC v. EPSA and Hughes v. Talen Energy Marketing

In Federal Energy Regulatory Commission v. Electric Power Supply Ass’n, the Supreme Court upheld FERC’s assertion of jurisdiction by allowing it to regulate practices that “directly affect” wholesale rates.[18] At issue in EPSA was whether FERC had authority to regulate demand response transactions (where a provider contracts with consumers to reduce energy consumption), or whether those transactions should be classified as “retail sales.”[19] The Federal Power Act grants FERC jurisdiction over practices affecting rates, and in EPSA, the Court adopted a D.C. Circuit test that cabined that authority to practices “directly affecting” rates.[20] After adopting the directly affecting test, the Court found that FERC had jurisdiction over demand response practices, that the rule did not impermissibly tread into authority reserved to the states, and that FERC did not act arbitrarily and capriciously in its decision to compensate electricity users at the same rates as electricity generators.

Whereas EPSA dealt primarily with the extent of FERC’s jurisdiction under the Federal Power Act, Hughes v. Talen Energy tackled the separate but related issue of whether a state program was preempted under the Federal Power Act.[21] The case was on review from the Fourth Circuit, where the appellate court found that a Maryland program was preempted both as a matter of field preemption (because FERC “occupies the field” of setting wholesale rates), and also as a matter of conflict preemption (because rates under Maryland’s program conflicted with FERC approved rates).[22] On review, the Supreme Court affirmed the lower court’s ruling, albeit on narrow grounds, finding that the Maryland program “impermissibly intrude[d] upon the wholesale electricity market, a domain Congress reserved to FERC alone.”[23]

One could argue that the Supreme Court narrowed the scope of the Fourth Circuit holding. For example, the Court distinguished between contracts-for-differences (which was the regulatory mechanism that Maryland deployed to encourage new natural gas plant development) and other more traditional long-term power purchase agreements.[24] However, in other ways, the Court’s opinion is actually more ambiguous—the Court does not clarify whether the correct analytical approach here should be conflict, field, or another form of preemption analysis,[25] and two Justices wrote concurring opinions to advocate for their distinct approaches.[26]

Because the opinion only addressed a narrow set of situations, the court did little if anything to address whether any other state regulatory mechanisms designed to encourage renewable deployment would be preempted under the Federal Power Act, and specifically limited their holding to Maryland’s program.[27] The decision provides no guidance on how to analyze these state law regulatory programs unless they contain contracts-for-differences that are pegged to a FERC-approved wholesale price, as Maryland’s program did. Therefore, the case is unlikely to act as a prophylactic to the litigation that is ongoing in the lower courts.[28] It makes one wonder why the Supreme Court took the case in the first place—there was no circuit split after the Fourth Circuit’s decision, and the Court failed to use the case as an opportunity to instruct the lower courts.

Putting Hughes and EPSA together: Examining Impacts on State Regulatory Authority

Combining the holding from EPSA with Hughes along with some of the more archaic language in previous energy preemption cases provide ample fuel for challenges to state renewable energy policies. Simply, if the Federal Power Act draws a jurisdictional “bright-line,”[29] or if “[i]t is common ground that if FERC has jurisdiction over a subject, then the States cannot have jurisdiction over the same subject,”[30] then any practice that “directly affects” wholesale rates should be exclusively within FERC’s jurisdiction. This could result in effectively shrinking state regulatory authority after EPSA and Hughes.

Still, the extent of practices that come within FERC’s “affecting” jurisdiction is unknown, and it may be that FERC must first exercise this jurisdiction over a particular practice before it has a preemptive effect. However, this doesn’t prevent litigants from making those arguments in the lower courts to invalidate clean energy programs, and Hughes may stand as a missed opportunity to clarify the scope of preemption under the Federal Power Act.

In fact, litigants are already citing Hughes and EPSA to challenge state clean energy programs. On October 2016, the Coalition for Competitive Energy filed a challenge to the New York Public Service Commission’s Clean Energy Standard in the Southern District of New York.[31] The Clean Energy Standard was issued in August,[32] and set a target for New York to obtain fifty percent of their electricity from renewable resources by 2030.[33] In addition to continuing New York’s renewable energy credit program,[34] the Clean Energy Standard included a requirement that load-serving entities purchase Zero-Energy Credits that correlate with electricity generated by nuclear facilities.[35] Coalition for Competitive Energy is challenging this specific program (the zero-emissions credits) in their complaint, alleging that it “operates within the area of FERC’s exclusive jurisdiction” and should therefore be preempted.[36] The petition cites EPSA to argue that “[s]tate actions that ‘directly affect the wholesale rate’” are invalid.[37]

Additionally, the Second Circuit recently granted Allco’s request for an injunction to prevent state officials from conducting a clean energy request for purchase (“RFP”) in Connecticut.[38] The decision did not enjoin state officials in Massachusetts and Rhode Island who are also participating in the RFP.[39] While the Second Circuit did not disclose their reasoning when it granted the injunction,[40] Allco’s petition for injunction pointed to Hughes when arguing that the program was preempted under the Federal Power Act.[41]

While it may seem that uncertainty in the preemption context is a net loss for individuals concerned about an accelerated transition to clean energy, climate advocates may also weaponize Hughes in other contexts to argue that other state polices that prop up coal and natural gas plants are preempted by the Federal Power Act. For example, the Ohio Public Utilities Commission recently attempted to use power-purchase agreements—which can sometimes be a tool to generate procure renewables[42]—to subsidize coal plants in the state.[43] The proposal was blocked by FERC before it could take effect,[44] but the program could have been challenged under Hughes if it remained in place.

Both examples citing to Hughes show challenges to state energy programs that operate outside of FERC-approved markets, unlike the Maryland program at issue in Hughes where the parties adjusted the FERC-approved rate.[45] Perhaps the biggest challenge going forward for clean energy advocates will be how to distinguish state programs that do not advance climate goals (like the Maryland program at issue in Hughes) from those that do (such as the program at issue in Allco), when both often use the exact same regulatory tools.

The Supreme Court may return to the question of the extent of federal and state authority under the Federal Power Act sometime within the next few years. It could reach one of several conclusions. It may reaffirm past language about the “bright-line” between federal and state regulatory authority—confirming that EPSA represented an expansion of FERC’s power and a simultaneous restriction on state authority. It may endorse some form of concurrent jurisdiction, as it did in the Natural Gas Act context in Oneok Inc. v. Learjet, Inc.,[46] and if it does, it may then decide how to restructure the preemption analysis under this concurrent jurisdictional model. It may establish some method of floor preemption,[47] or alternatively, it may leave the preemption decision up to the federal agency,[48] as it does in some other contexts.[49] Also, the Court may simply leave the resolution of these issues up to the lower federal courts.

Conclusion

Regardless of the approach the court takes, the fact that all of these questions remain open and unresolved currently creates considerable legal uncertainty for state regulators that are trying to update and craft effective clean energy laws. States are already testing the boundaries of their authority in many instances,[50] and many may continue to do so despite these new uncertainties. Further, it may be impossible to disaggregate the influence that legal uncertainty is having on state regulators from other influences such as political pressures. I would assume state legislators and regulators—some that are designing state laws to ensure their compliance with the Clean Power Plan—would likely prefer clarity on what regulatory mechanisms they are allowed to use without running afoul of the Supremacy Clause. Hughes thus represents a missed opportunity, and the recent power trio of Oneok, EPSA, and Hughes may shortly turn into a qu

[1] See, e.g., Christopher Bateman and James T.B. Tripp, Towards Greener FERC Regulation of the Power Industry, 38 Harv. Envtl. L. Rev. 275 (2014) (arguing that consideration of environmental consequences by FERC is permissible under the Federal Power Act); Joel B. Eisen, FERC’s Expansive Authority to Transform the Electricity Grid, 49 U.C. Davis L. Rev. 1783, 1788 (2016) (arguing that under recent case law, FERC may now include environmental considerations into wholesale rates so long as those considerations “directly affect” those rates); Steven Weissman & Romany Webb, Berkeley Center for Law, Energy & the Environment, Addressing Climate Change Without Legislation: Volume 2, How the Federal Energy Regulatory Commission Can Use Its Existing Legal Authority to Reduce Greenhouse Gas Emissions and Increase Clean Energy Use (2014), https://perma.cc/JH8H-FLYT (arguing that FERC can add the cost of carbon when setting the prices in the wholesale market).

[2] Order No. 1000, Transmission Planning and Cost Allocation by Transmission Owning and Operating Public Utilities, 136 FERC ¶ 61,051, 76 Fed. Reg. 49841 (Aug. 11, 2011) (codified at 18 C.F.R. § 35) (requiring regional transmission planning to consider state and local public policy requirements); Order No. 745, Demand Response Compensation in Organized Wholesale Energy Markets, 134 FERC ¶ 61,187, 76 Fed. Reg. 16657 (Mar. 24, 2011) (codified at 18 C.F.R.§ 35.28(g)(1)(v)) (allowing demand response providers to bid into the wholesale market).

[3] New York v. FERC, 535 U.S. 1, 6–7 (1996).

[4] 136 S. Ct. 760, 773 (2016).

[5] FERC defines demand response as “a reduction in the consumption of electric energy by customers from their expected consumption in response to an increase in the price of electric energy or to incentive payments designed to induce lower consumption of electric energy.” 18 C.F.R. § 35.28(b)(4) (2015).

[6] See Joel B. Eisen, FERC v. EPSA and the Path to a Cleaner Energy Sector: Introduction, 40 Harv. Envtl. L. Rev. Forum 1, 7–8 (2016) (“In the long run, this concise, broad jurisdictional standard gives FERC considerable flexibility to promote a cleaner, more efficient Smart Grid.”).

[7] See 16 U.S.C. § 824 (a)–(b) (2016); New York, 535 U.S. at 19–25 (“FERC has recognized that the states retain significant control over local matters . . . [including] generation and transmission siting . . . [and] authority over utility generation and resource portfolios”) (citing Order No. 888, Promoting Wholesale Competition Through Open Access Non-discriminatory Transmission Services by Public Utilities, 75 FERC ¶ 61,080, 61 Fed. Reg. 21540, 21,626 n.543, n.544 (May 10, 1996) (codified at 18 C.F.R. § 35 and § 385)).

[8] See generally Toby Couture and Karlynn Cory, National Renewable Energy Laboratory, State Clean Energy Policies Analysis (SCEPA) Project: An Analysis of Renewable Energy Feed-in Tariffs in the United States (2009), https://perma.cc/G2MZ-AY7F.

[9] See generally David Hurlbut, National Renewable Energy Laboratory, State Clean Energy Practices: Renewable Portfolio Standards (2008), https://perma.cc/JWE4-J9BB.

[10] See generally Eric Lantz and Elizabeth Doris, National Renewable Energy Laboratory, State Clean Energy Practices: State Renewable Rebates (2009), https://perma.cc/HWE7-EBZM.

[11] The State of Washington considered a carbon tax in a 2016 ballot initiative. See, Initiative Measure No. 732 (filed March 29, 2016) https://perma.cc/26ZL-Z9D8.

[12] Minn. Stat. § 216H.03, subd. 3(2) and (3) (2007) (“no person shall . . . (2) import or commit to import from outside the state power from a new large energy facility that would contribute to statewide power sector carbon dioxide emissions; or (3) enter into a new long-term power purchase agreement that would increase statewide power sector carbon dioxide emissions.”)

[13] See generally Edison Electric Institute, Solar Energy and Net Metering (2016), https://perma.cc/Z3GU-5LKV.

[14] Jocelyn Durkay, “State Renewable Portfolio Standards and Goals,” National Conference of State Legislatures (July 27th, 2016) (reporting that “Twenty-nine states, Washington, D.C. and three territories have adopted an RPS, while eight [additional] states have set renewable energy goals”). https://perma.cc/DV9L-JRRL.

[15] See Public Service Commission of N.Y., Order Adopting a Clean Energy Standard (Aug. 1 2016). https://perma.cc/3GSF-Q36Z.

[16] See, e.g., North Dakota v. Heydinger, 825 F.3d 912 (8th Cir. 2016) (of three separate opinions, two held that Minnesota statute was preempted by the Federal Power Act); Rocky Mountain Farmers Union, et al., v. Richard W. Corey, 730 F.3d 1070 (9th Cir. 2013); Energy and Environmental Legal Institute v. Epel, 793 F.3d 1169 (10th Cir. 2015); Allco Finance Ltd. v. Klee, 805 F.3d 89, 95–96 (2d Cir. 2015) (rejecting plaintiff’s argument that solar contracts approved by the state regulator were preempted by the Public Utilities Regulatory Policies Act); see also Harvard Environmental Law and Policy Institute, State Power Project: Examining State Authority in Interstate Electricity Markets, https://statepowerproject.org (2016).

[17] Jim Rossi, The Brave New Path of Energy Federalism, 95 Tex. L. Rev. (forthcoming 2016).

[18] EPSA, 136 S.Ct. at 773.

[19] The D.C. Circuit found that FERC’s regulation of demand response transactions impermissibly intruded outside of FERC’s authorized jurisdiction under the Federal Power Act. EPSA v. FERC, 753 F.3d 216, 222 (D.C. Cir. 2014).

[20] EPSA, 136 S.Ct. at 774 (citing Calif. Independent System Operator v. FERC, 372 F.3d 395, 403 (D.C. Cir. 2004)).

[21] Hughes v. Talen Energy Marketing LLC, 136 S. Ct. 1288 (2016).

[22] PPL Energy Plus, LLC v. Nazarian, 753 F.3d 467 (4th Cir. 2014).

[23] Hughes, 136 S. Ct. at 1292.

[24] Id. at 1299 (“But the contract at issue here differs from traditional bilateral contracts in this significant respect: The contract for differences does not transfer ownership of capacity from one party to another outside the auction.”).

[25] Id. at 1297 (“A state law is preempted where Congress has legislated comprehensively to occupy an entire field of regulation, leaving no room for the States to supplement federal law,” as well as “where, under the circumstances of a particular case, the challenged state law stands as an obstacle to the accomplishment and execution of the full purposes and objectives of Congress” (citations omitted).

[26] Id. at 1300 (Sotomayor, J., concurring) (clarifying that the purpose of the Federal Power Act should serve as the “ultimate touchstone” for the preemption analysis and the Court should resist “talismanic” preemption vocabulary); id. at 1301 (Thomas, J., concurring) (stating that he would not rest his holding on principles of implied-preemption).

[27] Id. at 1299 (“Our holding is limited: We reject Maryland’s program only because it disregards an interstate wholesale rate required by FERC. We therefore need not and do not address the permissibility of various other measures States might employ to encourage development of new or clean generation, including tax incentives, land grants, direct subsidies, construction of state-owned generation facilities, or re-regulation of the energy sector. Nothing in this opinion should be read to foreclose Maryland and other States from encouraging production of new or clean generation through measures untethered to a generator’s wholesale market participation.”).

[28] See supra note 16 and accompanying text.

[29] Federal Power Commission v. Southern Cal. Edison Co., 376 U.S. 205, 215–216 (1964) (“Congress meant to draw a bright line easily ascertained, between state and federal jurisdiction. . .”). But see Oneok, Inc. v. Learjet, Inc., 135 S. Ct. 1591, 1601 (2015) (describing the clear division between federal and state authority in the Natural Gas Act context as a “Platonic ideal”); FERC v. EPSA, 136 S.Ct. 760, 780 (2016) (“The [Federal Power Act] makes federal and state authority complementary”); Hughes v. Talen Energy Marketing, LLC., 136 S.Ct. 1288 (2016) (Sotomayor, J., concurring) (“the Federal Power Act, like all collaborative federalism statutes, envisions a federal-state relationship marked by interdependence”).

[30] Mississippi Power & Light Co. v. Mississippi ex. rel. Moore, 487 U.S. 354, 377 (1984) (Scalia, J., concurring). The majority opinion also acknowledges “FERC has exclusive authority to determine the reasonableness of wholesale rates. . .” Id. at 355.

[31] Complaint, Coalition for Competitive Energy v. Zibelman (S.D.N.Y. filed Oct. 19, 2016) (No. 1:16-cv-08164), https://perma.cc/U9Z9-2UR6.

[32] Public Service Commission of New York, Order Adopting a Clean Energy Standard (Aug. 1 2016), https://perma.cc/J82W-XSZP.

[33] Id. at 6.

[34] Id. at 38.

[35] Id. at 45.

[36] Complaint at 5, Coalition for Competitive Energy v. Zibelman, (S.D.N.Y. filed Oct. 19, 2016) (No. 1:16-cv-8164), https://perma.cc/U9Z9-2UR6.

[37] Id. at 11.

[38] Order Granting Preliminary Injunction, Allco Finance Ltd. v. Klee (2d. Cir. 2016) (No. 16-2946).

[39] See id.

[40] See id.

[41] Petition for Injunction at 2, Allco Finance Ltd. v. Klee, No. 16-2946 (2d. Cir. 2016) (No. 16-2946).

[42] Cf. American Council on Renewable Energy, Renewable Energy in Massachusetts (2014), https://perma.cc/V6GF-GEF8 (“In February 2014, the state approved 12 long-term power purchase agreements with four Massachusetts utilities for 409 MW of wind projects in Maine and New Hampshire”).

[43]See In the Matter of the Application of Ohio Electric Company, Case No. 14-1297-EL-SSO (Pub. Util. Comm’n of Ohio 2016), https://perma.cc/T24L-6XCA.

[44] Gavin Bade, FERC Blocks Ohio Power Plant Subsidies for AEP and FirstEnergy, Utility Dive (Apr. 28, 2016), https://perma.cc/4ZCG-SPQT.

[45] Hughes v. Talen Energy Marketing LLC, 136 S. Ct. 1288, 1299 (2016).

[46] 135 S. Ct. 1591, 1599 (instructing that for preemption under the Natural Gas Act, the appropriate inquiry is to examine the target at which state law “aims”).

[47] Jim Rossi and Thomas G. Hutton, Federal Preemption and Clean Energy Floors, 91 N.C. L. Rev. 1283 (2013).

[48] See Rossi, supra note 17 at 65 (stating that whether state programs are preempted may be left to FERC, as opposed to a case-by-case determination by the judiciary).

[49] See generally Brian Galle & Mark Seidenfeld, Administrative Law’s Federalism: Preemption, Delegation and Agencies at the Edge of Federal Power, 57 Duke L. J. 1933 (2008).

[50] See supra note 16 and accompanying text.

This post is part of the Environmental Law Review Syndicate, a multi-school online forum run by student editors from the nation’s leading environmental law reviews.

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By Samantha L. Varsalona, Georgetown University Law Center, Class of 2018 Staff Member, Georgetown Environmental Law Review

This post is part of the Environmental Law Review Syndicate, a multi-school online forum run by student editors from the nation’s leading environmental law reviews.

__________________________________________

By Elizabeth Kuhn*

Many recent decisions by the Ninth Circuit[1] have required the court to review agency actions under the Administrative Procedure Act[2] (APA) arbitrary or capricious standard.[3] The Supreme Court has held that the arbitrary or capricious standard is a “highly deferential” standard of review, though the inquiry must nonetheless “be searching and careful.”[4] Furthermore, the agency’s decision is “‘entitled to a presumption of regularity,’ and [the Court] may not substitute [its] judgment for that of the agency.”[5] For purposes of this discussion, it is important to note that “traditional deference to the agency is at its highest where a court is reviewing an agency action that required a high level of technical expertise.”[6]

In cases where a petitioner is challenging an agency action under the Endangered Species Act[7] (ESA) the court will usually be tasked with reviewing whether the action was arbitrary or capricious in light of the ESA’s “best available science” mandate.[8] The ESA requires an agency to insure that its actions will not jeopardize the continued existence of any endangered species,[9] and the best available science mandate requires the agency to utilize the best available scientific data to inform its no jeopardy review.[10] Challenges to an agency action as arbitrary and capricious for failing to utilize the best available science must show that the agency ignored the relevant available science.[11]

Given the heightened level of deference for decisions based on science and the low standard of what constitutes the best available science, the ESA mandate rarely threatens to invalidate an agency’s decision.[12] In fact, none of the Ninth Circuit cases in the last year that have considered the issue have substantively evaluated an agency decision under the best available science mandate.[13] Rather, the agencies were given heightened deference to make their own decisions as to what constituted best available science.[14] This leaves us to wonder whether the ESA’s best available science mandate serves as a purposeful requirement in the Ninth Circuit.

II. The APA and the Arbitrary and Capricious Standard

 

The APA provides the standard for judicial review of an agency decision. Specifically, section 10 addresses judicial review and provides:

To the extent necessary to decision and when presented, the reviewing court shall decide all relevant questions of law, interpret constitutional and statutory provisions, and determine the meaning or applicability of the terms of an agency action.[15]

Section 10 further establishes the arbitrary and capricious standard by stating that the reviewing court shall “hold unlawful and set aside agency action, findings, and conclusions found to be … arbitrary, capricious, an abuse of discretion, or otherwise not in accordance with law.”[16]

The APA’s arbitrary and capricious standard of review, however, is only applied when the governing legislation does not set forth its own standard of review.[17] There are several examples of legislation that utilize the APA as a default,[18] but key to this commentary is the fact that the ESA also relies on the APA as its default standard of review.

A. Meaning of Arbitrary and Capricious

Based on the text of the applicable legislation, it is easy to know when the arbitrary and capricious standard will be applied as the governing standard of review. However, in addition to understanding when the standard of review will be applied, it is helpful for both agencies and courts to have the same understanding of what is meant by “arbitrary and capricious.”

Congress did not define precisely what it meant by “arbitrary and capricious” within the text of the APA.[19] Instead, courts have looked to the terms’ ordinary meaning for a definition.[20] For example, Black’s Law defines arbitrary as a decision “founded on prejudice or preference rather than on reason or fact.”[21] Additionally, capricious is defined as “unpredictable or impulsive behavior” or “contrary to the evidence or established rules of law.”[22]

B. Deference

The arbitrary and capricious standard of review is a very narrow standard of review that requires the reviewing court to assume a deferential posture such that the court may not simply substitute its judgment for that of the agency.[23] Although the court’s deference must be at its highest when reviewing agency decisions relying on technical expertise, the reviewing court still has an affirmative obligation under the APA to ensure the agency exercised sound judgment and made a reasonable decision based on its available information.[24] Thus, in its review the court must walk a fine line between substituting its judgment for that of the agency and simply affirming agency decision making because it was the decision of the agency.

The U.S. Supreme Court has somewhat defined this line by stating that courts are only to determine if the agency considered the “relevant factors” and if the agency made a “clear error of judgment,” rendering its actions arbitrary and capricious.[25] Because terms such as “clear error of judgment” do not provide a clear standard, the Supreme Court articulated four specific scenarios for when agencies’ actions are considered arbitrary and capricious:

1. The agency “relied on factors which Congress has not intended it to consider.”
2. The agency “entirely failed to consider an important aspect of the problem.”
3. The agency “offered an explanation for its decision that runs counter to the evidence before the agency.”
4. The agency offered an explanation “so implausible that it could not be ascribed to a difference in view or the product of agency expertise.”[26]

These rules provide clarity to both courts and agencies because they set forth a specific standard for determining whether an agency has acted arbitrarily and capriciously.

III. Best Available Science Under the Endangered Species Act

A. History

The Endangered Species Preservation Act of 1966[27] (ESPA) was the first environmental statute to impose a requirement to utilize science in environmental decisions made by an administrative body.[28] The statute required the Secretary of the Interior to make determinations as to which species were at risk of extinction and directed the secretary to consult with relevant scientists in creating the list of endangered species.[29] The ESPA did not require the ultimate listing decisions to rest on the scientific information, but Congress intended the consultations to provide the foundation for the listings.[30]

The “best available science” requirement was later introduced in the Endangered Species Conservation Act of 1969[31] and remained largely unchanged in the current ESA.[32] However, Congress neither defined “best available science” nor provided instruction as to how to apply the requirement in either the 1969 Act or the current 1973 Act.[33] It has been suggested that the term “best available science” was not further defined in either the 1969 or 1973 statutes because Congress simply intended to continue the ESPA requirement to seek input from scientists prior to making listing decisions.[34]

B. What is Required Under the Best Available Science Mandate?

Without an explicit statutory definition or guidelines of how to apply the best available science mandate, we are forced to rely on judicial opinions interpreting the ESA to ascertain what is required by the mandate. Two distinct guidelines emerge from looking at these opinions: (1) an agency cannot ignore relevant available data and (2) an agency does not have an obligation to generate new data, even if only relatively weak data is available.[35]

The Ninth Circuit has repeatedly held that an agency “cannot ignore available biological information.”[36] Put more specifically, the agency “must not disregard available scientific evidence that is in some way better than the evidence it relies on.”[37] Furthermore, the court has held that an agency is not necessarily in noncompliance with the best available science mandate if it disagrees with or discredits the available scientific data.[38] For example, in Kern County Farm Bureau v. Allen[39] (Kern) the court rejected Kern’s argument that the United States Fish & Wildlife Service (FWS) violated the best available science mandate by misinterpreting three studies. In Kern, the fact that the FWS cited the studies and did not ignore them was enough to comply with the best available science mandate.[40] Therefore, a challenger must specifically point to relevant data that was omitted from consideration to sustain a claim that an agency failed to utilize the best available science.[41]

Although the Ninth Circuit has required an agency to utilize the best scientific data available, the court has also held that the mandate “does not… require an agency to conduct new tests or make decisions on data that does not yet exist.”[42] This holding is consistent with other circuits that have addressed this issue.[43] For example, the D.C. Circuit has held that an agency must utilize the best scientific data available, not the best scientific data possible.[44]

This approach has been met with criticism because agencies are allowed to rely on data that is weak or inconclusive when it is the only data available.[45] Because few data are available for many endangered species,[46] there exists the possibility that many decisions regarding endangered species will be made with little to no scientific data in support. If that were the case, the purpose of consulting scientific data prior to making a decision would be entirely undermined.

C. Application of the Best Available Science Mandate Under the Current Endangered Species Act

The best available science mandate is triggered any time an agency contemplates an action that might impact an endangered species. Section 7(a) of the ESA requires the agency to “insure that any action authorized, funded, or carried out by such agency is not likely to jeopardize the continued existence of any endangered or threatened species or result in destruction or adverse modification of the habitat of such species.”[47] Section 7(a) further requires that in fulfilling the requirements under the section the agency “shall use the best available scientific and commercial data.”[48]

D. Deference

The deference afforded to agencies in review of science-based decisions raises doubt as to whether the best available science mandate actually operates as a substantial requirement to an agency proposing an action under section 7. The Ninth Circuit in particular has held that when the analysis of an agency decision requires a high level of technical expertise, the court “must defer to the informed discretion of the responsible federal agencies.”[49] In fact, it is common practice across the circuits to give an “extreme degree” of deference to decisions founded on the scientific or technical expertise of an agency.[50]

IV. Ninth Circuit Deference on Matters of Science

A. A Substantive Mandate in 2005

In 2005 the Ninth Circuit decided Pacific Coast Federation of Fishermen’s Ass’ns v. Bureau of Reclamation[51] (Pacific Coast) and breathed life into the best available science mandate. Prior to this decision, many courts had used deference to avoid upholding the substantive mandate requiring agencies to insure against jeopardy.[52] In Pacific Coast, the Ninth Circuit inserted itself into the Klamath Basin conflict.[53] The conflict stemmed from the National Marine Fisheries Service (NMFS) issuing a biological opinion (BiOp) requiring the Bureau of Reclamation (BOR) to limit diversion of water from the Klamath River for irrigation purposes because this diversion would jeopardize the continued existence of the endangered suckerfish and coho salmon.[54] This closure resulted in significant agricultural losses, as 2001 also saw record drought.[55]

After the drought of 2001, the Departments of the Interior and Commerce commissioned the National Research Council (NRC) to perform a “scientifically rigorous peer review” of whether the BiOp was consistent with available scientific information.[56] The conclusion of the NRC study questioned the validity of the 2001 BiOp.[57] The study found that “the 2001 BiOp’s drastic halting of water diversions was not scientifically supported,” but the study did not offer comment as to the minimum water levels necessary to maintain the endangered fish.[58]

In 2002, BOR prepared a long-range biological assessment and proposed a new flow regime that would vary the river flow by “water year type.”[59] The NMFS concluded that the BOR’s proposed actions would jeopardize the continued existence of coho salmon, and it issued a new BiOp that developed a reasonable and prudent alternative (RPA) to replace the BOR proposal.[60] That RPA was the subject of Pacific Coast.

The Northern District of California found that the short-term measures of the RPA were not arbitrary and capricious.[61] On appeal to the Ninth Circuit, the Court did not grant the customary heightened deference to the agency’s decision.[62] Rather, the Court engaged in a “careful and searching” review of the BiOp, stating that the agency “is obligated to articulate a rational connection between the facts found and the choices made.”[63] Specifically, the court found that

Although . . . the agency believed that the RPA would avoid jeopardy to the coho, this assertion alone is insufficient to sustain the BiOp and the RPA. The agency essentially asks that we take its word that the species will be protected if its plans were followed. If this were sufficient, the NMFS could simply assert that its decisions were protective and so withstand all scrutiny.[64]

Therefore, the Ninth Circuit found the authorized short-term measures of the Bi-Op to be arbitrary and capricious.[65]

This decision marked an important step in making the ESA’s best available science requirement a substantive mandate. Despite the deference due to the agency, the court looked substantively at the BiOp to find that it could not insure against jeopardy. This case sent a message that an agency could not rely on heightened deference to avoid judicial review of its actions.

B. Clarification of the Arbitrary and Capricious Standard in 2008

In 2008, the Ninth Circuit sought to “clarify some of [its] environmental jurisprudence” by hearing en banc Lands Council v. McNair (Lands Council III).[66] The court felt a need for uniformity because Ecology Center, Inc. v. Austin[67] “defied well-established law concerning the deference [the court] owe[s] to agencies and their methodological choices.”[68] Additionally, the court likely wanted to address the fact that “in recent years, [the Ninth Circuit’s] environmental jurisprudence has, at times, shifted away from the appropriate standard of review and could be read to suggest” that judges should sit on the bench and “act as a panel of scientists.”[69]

The en banc review resulted in a reversal of the preliminary injunction initially granted by the Ninth Circuit in The Lands Council v. McNair (Lands Council II)[70] and the overruling of Ecology Center.[71] Lands Council III overruled Ecology Center’s instruction that courts may suggest how an agency is required to validate its scientific methodology.[72] In Ecology Center, the court required the Forest Service to “demonstrate the reliability of its scientific methodology or the hypothesis underlying the Service’s methodology with on the ground analysis,”[73] but the court in Lands Council III concluded that the Forest Service may use a particular analysis “if it deems it appropriate or necessary, but it is not required to do so.”[74] In other words, as long as “there is a reasonable scientific basis to uphold the legitimacy of [the] modeling,” the courts are required to give deference to the agency and uphold its model.[75] Therefore, Lands Council III significantly reigned in the court’s ability to question how agencies justify scientific methodology.

In addition to precluding courts from prescribing the means by which an agency validates its scientific methodologies, Lands Council III also established that courts do not have the authority to choose which scientific studies support agency actions.[76] If the agency considered the scientific evidence available to it, courts must defer to the agency’s interpretations of that scientific evidence.[77]Therefore, because the Forest Service considered many different studies, the court in Lands Council III explicitly deferred to the agency’s interpretation of the scientific evidence.[78]

Finally, Lands Council III overruled Ecology Center’s requirement that an agency must present every scientific uncertainty in the evidence used to inform a decision.[79] Consequently, an agency no longer bears “the burden to anticipate questions that are not necessary to its analysis, or to respond to uncertainties that are not reasonably supported by any scientific authority.”[80] The Ninth Circuit only requires that an agency “acknowledge and respond to comments by outside parties that raise significant scientific uncertainties and reasonably support that such uncertainties exist.”[81]

Thus, the en banc court established three rules to guide Ninth Circuit jurisprudence when using the arbitrary and capricious standard of review for an agency’s use of science:

1. Courts may not prescribe the specific means by which an agency must validate methodologies.
2. Courts may no longer choose between which scientific studies support an agency’s action, so long as the agency provides an explanation for its conclusion.
3. An agency no longer needs to address every scientific uncertainty surrounding the science it uses to support its position. The agency only needs to “acknowledge” and “respond” to the claims by parties raising and supporting that “significant scientific uncertainties” exist.[82]

C. Current Cases

Pacific Coast marked what commentators believed was a change toward a more substantive science requirement.[83] However, a decade later it does not appear as though the Ninth Circuit has continued down the Pacific Coast path of reducing the deference it affords to agencies when reviewing compliance with the best available science mandate. Rather, the Ninth Circuit has stayed consistent with the “rules” issued by the Lands Council III en banc court. However, the three cases decided by the Ninth Circuit in 2015 reviewing the best available science requirement under the ESA[84] show that heightened agency deference is rendering the science mandate utterly meaningless.

In Alliance for the Wild Rockies v. Bradford,[85] the Ninth Circuit issued a memorandum opinion affirming that the United States Forest Service (USFS) did not violate the ESA by concluding that its Grizzly Project would not likely adversely affect the grizzly bear population.[86] The court noted that USFS met the requirements of the ESA by consulting the Wakkinen Study when making its determination.[87] The court also noted that its review of the scientific judgments and technical analyses made within an agency’s field of expertise should be at its most deferential.[88] Therefore, the court concluded that USFS had complied with the ESA’s best available science mandate.[89]

In Center for Biological Diversity v. United States Fish & Wildlife Service,[90] the Center for Biological Diversity (CBD) brought suit against the FWS challenging the FWS’s decision to sign a memorandum of agreement (MOA) for groundwater pumping based on conclusions reached in its biological opinion (BiOp).[91] CBD sued for declaratory and injunctive relief against the FWS alleging, among other things, that the BiOp failed to meet the best available science standard set forth by §7 of the ESA.[92]

Specifically, CBD argued that the foundation of the BiOp’s no jeopardy finding was based on expediency not on science.[93] CBD attempted to support its argument by pointing to the fact that the conservation measures’ flow reduction triggers were negotiated and not biologically based.[94] The Ninth Circuit noted that the ESA does not require FWS to design or plan its projects using the best science possible.[95] Rather, “once action is submitted for formal consultation, the consulting agency must use the best scientific and commercial evidence available in analyzing the potential effects of that action on endangered species in its biological opinion.”[96] Therefore, the court concluded that negotiated terms do not of themselves prove that the BiOp analysis failed to utilize the best available science.[97]

Additionally, CBD argued that the BiOp’s conclusions should not be given deference because the FWS failed to address concerns raised by its own scientists regarding the effectiveness of the MOA’s conservation measures.[98] The Ninth Circuit explained that CBD’s claim failed as there was no evidence supporting a conclusion that FWS scientists’ concerns were supported by better science than the science used in the BiOp, or that FWS disregarded better scientific information than the evidence FWS relied upon.[99] Thus, the Ninth Circuit concluded that CBD was unable to prove that the no jeopardy conclusion in the BiOp was arbitrary or capricious for failing to utilize the best available science.[100]

In Cascadia Wildlands v. Thrailkill,[101] Cascadia Wildlands (Cascadia) brought action seeking to enjoin the Douglas Fire Complex Recovery Project (Recovery Project), which authorized salvage logging of roughly 1,600 acres of fire-damaged forest.[102] In approving the Recovery Project, the Medford District of the Bureau of Land Management relied on a biological opinion issued by the FWS.[103] This biological opinion concluded that the Recovery Project was not likely to result in jeopardy to the Northern Spotted Owl species or in destruction or adverse modification of the critical habitat.[104] Cascadia claimed the FWS biological opinion failed to comply with requirements of the ESA because the FWS did not apply scientific data to the opinion.[105]

As to the no jeopardy conclusion, the court found that the record supported that the FWS relied on several surveys to reach its conclusion and gave the agency deference that the data it used was the best available scientific data.[106] With regard to the effects on the habitat, the court found that the FWS utilized several lengthy scientific reports regarding pre-fire and post-fire habitats to support the conclusion in its biological opinion.[107] Furthermore, the court noted that a reviewing court cannot substitute its judgment for that of the agency when the agency used adequate and reliable data.[108]

Cascadia also argued that the FWS’s 2011 Northern Spotted Owl Recovery Plan constituted the best available science and that the FWS was required to follow it.[109] The court rejected this argument. The court stated that recovery and jeopardy are two distinct concepts.[110] The court noted that a Recovery Project does not necessarily need to promote or bring about a long-term recovery of the species.[111] Rather, the biological opinion should and does focus on the Recovery Project’s ability to conserve the habitat so as not to have a detrimental effect on the species population.[112]

The court ultimately concluded that Cascadia failed to show that the FWS did not utilize the best available scientific information when issuing its biological opinion that the Recovery Project would not jeopardize the Northern Spotted Owl or its critical habitat.[113] Therefore, the Ninth Circuit affirmed the district court’s denial of the preliminary injunction to enjoin the Recovery Project.[114]

These three cases illustrate that the Ninth Circuit is still affording agencies heightened deference in scientific judgments and technical analyses. The court appears to look merely at whether the agency consulted scientific data prior to making decisions without reviewing the adequacy of the scientific data. Therefore, the ESA’s best available science mandate can be easily satisfied and will be subject to little scrutiny in the Ninth Circuit.

V. Conclusion

When reviewing scientific decisions based on agency expertise, the standard practice across the circuits is to afford deference to the agency unless is it shown that the agency ignored relevant scientific data when making its decision.[115] Unfortunately, this practice leaves little recourse for petitioners seeking to hold an agency accountable for substantiating its decision. As it stands now, the best available science requirement is satisfied as long as the agency considers the available data.[116] The agency is free to disagree with the data, discredit the data, or rely on weak or inconclusive data if it is the only data available.[117] As long as the agency articulates the rationale between the data and the decision made, the court will uphold the agency action.[118] This means that as long as an agency communicates a justification for its decision, the justification itself will more than likely not be reviewed by the court.

In 2005, the Ninth Circuit substantively reviewed an agency decision and found the agency relied heavily on unstated assumptions rather than scientific evidence.[119] Had the court simply given deference to the agency’s conclusion because it articulated a justification for its decision, the court would have failed to notice that the agency was not actually basing that decision on science. Pacific Coast exemplifies the need for substantive review of agency decisions, even though the court does not like to assume the role of technical expert.[120]

Although the Ninth Circuit demonstrated in Pacific Coast that it was willing to substantively review agency decisions relating to science, the court has since shifted back to the more customary deferential approach. As the three 2015 cases show, the Ninth Circuit is reluctant to substitute its judgment for that of an agency with regard to science and as a result affords agencies great deference when reviewing decisions based on the agency’s scientific expertise.

It is unclear why the Ninth Circuit has shifted back to the deferential standard of review. Perhaps it is because Congress has remained silent on the science standard for over three decades, or perhaps the court is reluctant to proceed differently than the other circuits. Whatever the reason, it is clear that until courts engage in substantive review of agencies’ scientific decisions or Congress establishes an explicit standard of the type and quality of scientific data required, the best science available mandate will continue to operate as a fiction in the review of agency decisions.

* J.D. Candidate 2017, Lewis & Clark Law School. Please send correspondence to elizabethkuhn@lclark.edu.

[1] E.g., Cascadia Wildlands v. Thrailkill, 806 F.3d 1234 (9th Cir. 2015); Ctr. for Biological Diversity v. U.S. Fish & Wildlife Serv., 807 F.3d 1031 (9th Cir. 2015); All. for the Wild Rockies v. Bradford, 601 Fed. App’x 488 (9th Cir. 2015) (mem.).

[2] Administrative Procedure Act, 5 U.S.C. §§ 551–559, 701–706, 1305, 3105, 3344, 4301, 5335, 5372, 7521 (2012).

[3] 5 U.S.C. § 706(2)(A) (requiring a reviewing court to uphold agency action unless it is “arbitrary, capricious, an abuse of discretion, or otherwise not in accordance with law.”).

[4] Marsh v. Or. Nat. Res. Council, 490 U.S. 360, 378 (1989); San Luis & Delta-Mendota Water Auth. v. Jewell, 47 F.3d 581 (9th Cir. 2014).

[5] Jewell, 47 F.3d at 601. (quoting Citizens to Preserve Overton Park, Inc. v. Volpe, 401 U.S. 402, 415–16 (1971)).

[6] Marsh, 490 U.S. at 377.

[7] Endangered Species Act of 1973, 16 U.S.C. §§ 1531–1544 (2012).

[8] See cases cited supra note 2.

[9] 16 U.S.C. § 1536(a)(2) (2012).

[10] Id.

[11] See Bldg. Indus. Ass’n of Superior Cal. v. Norton, 247 F.3d 1241, 1246 (D.C. Cir. 2001).

[12] Katherine Renshaw, Leaving the Fox to Guard the Henhouse: Bringing Accountability to Consultation Under the Endangered Species Act, 32 Colum. J. Envtl. L. 161, 187 (2007).

[13] See cases cited supra note 2.

[14] See cases cited supra note 2.

[15] 5 U.S.C. § 706 (2012).

[16] Id.

[17] E.g., Al-Fayed v. Cent. Intelligence Agency, 254 F.3d 300, 304 (D.C. Cir. 2001) (“The APA, however, ‘provides a default standard of judicial review . . . where a statute does not otherwise provide a standard.’”).

[18] The National Forest Management Act (NFMA), 16 U.S.C. §§1600–1687 (2012), and the National Environmental Policy Act of 1969 (NEPA), 42 U.S.C. §§ 4321–4370h (2012), are other examples of legislation that rely on the APA as a default standard of review.

[19] See 5 U.S.C. §706(2)(A) (2012).

[20] See Fed. Commc’ns Comm’n v. Fox Television Stations, Inc., 556 U.S. 502, 516 (2009) (stating that the arbitrary and capricious standard is satisfied so long as the Commission’s action was not arbitrary or capricious in the ordinary sense); United States v. Locke, 471 U.S. 84, 95 (1985) (deference to the supremacy of the Legislature, as well as recognition that Congressmen typically vote on the language of a bill, generally requires us to assume that the legislative purpose is expressed by the ordinary meaning of the words used).

[21] Black’s Law Dictionary 112 (9th ed. 2009).

[22] Id. at 224.

[23] Marsh v. Or. Nat. Res. Council, 490 U.S. 360, 377–78 (1989); see U.S. Postal Service v. Gregory, 534 U.S. 1, 6–7 (2001).

[24] See Marsh, 490 U.S. at 377–78.

[25] Id.

[26] Motor Vehicle Mfrs. Ass’n of U.S., Inc. v. State Farm Mut. Auto. Ins. Co., 463 U.S. 29, 43 (1983).

[27] Pub. L. No. 89-669, 80 Stat. 926 (1966).

[28] Holly Doremus, Listing Decisions Under the Endangered Species Act, Why Better Science Isn’t Always Better Policy, 75 Wash. U.L.Q. 1029, 1042 (1997).

[29] § 1(c), 80 Stat. at 926.

[30] Doremus, supra note 15, at 1042.

[31] Pub. L. No. 91-135, 83 Stat. 275 (1969).

[32] See 16 U.S.C. § 1536(a)(2) (2012).

[33] See § 3(a), 83 Stat. at 275; 16 U.S.C. § 1532 (2012).

[34] Doremus, supra note 15, at 1043.

[35] Renshaw, supra note 12, at 167.

[36] Conner v. Burford, 848 F.2d 1441, 1454 (9th Cir. 1988); see also San Luis & Delta-Mendota Water Auth. v. Locke, 776 F.3d 971, 995 (9th Cir. 2014).

[37] San Luis & Delta-Mendota Water Auth., 776 F.3d at 995.

[38] See id.

[39] 450 F.3d 1072 (9th Cir. 2006).

[40] Id. at 1081.

[41] See id.

[42] San Luis & Delta-Mendota Water Auth., 776 F.3d at 995.

[43] E.g., Am. Wildlands v. Kempthorne, 530 F.3d 991, 998–99 (D.C. Cir. 2008).

[44] Bldg. Indus. Ass’n of Superior Cal. v. Norton, 247 F.3d 1241, 1246 (D.C. Cir. 2001).

[45] Renshaw, supra note 12, at 169.

[46] Id.

[47] 16 U.S.C. § 1536(a)(2) (2012).

[48] Id.

[49] Selkirk Conservation All. v. Fosgren, 336 F.3d 944, 954 (9th Cir. 2003).

[50] City of Waukesha v. U.S. Envtl. Prot. Agency, 320 F.3d 228, 247 (D.C. Cir. 2003); see also Maine v. Norton, 257 F. Supp. 2d at 389 (“The court must defer to the agency’s expertise, particularly with respect to decision-making which involves a high level of technical expertise.”); A.M.L. Int’l, Inc. v. Daley, 107 F. Supp. 2d 90, 102 (D. Mass. 2000) (“Indeed, a reviewing court must afford special deference to an agency’s scientific expertise.”).

[51] 426 F.3d 1082 (9th Cir. 2005).

[52] Renshaw, supra note 12, at 187.

[53] See Pacific Coast, 426 F.3d 1082.

[54] See id. at 1087.

[55] See id.

[56] J.B. Ruhl, The Battle Over Endangered Species Act Methodology, 34 Envtl. L. 555, 584–85 (2004).

[57] Pacific Coast, 426 F.3d at 1087.

[58] Renshaw, supra note 12, at 188.

[59] Pacific Coast, 426 F.3d at 1088.

[60] Id.

[61] Id. at 1089.

[62] See id.

[63] Id. at 1091.

[64] Id. at 1092.

[65] Id.

[66] 537 F.3d 981, 984 (9th Cir. 2008).

[67] 430 F.3d 1057 (9th Cir. 2005).

[68] Lands Council III, 537 F.3d at 991.

[69] Id. at 998.

[70] 494 F.3d 771 (9th Cir. 2007), rev’d en banc, 537 F.3d 981 (9th Cir. 2008).

[71] Lands Council III, 537 F.3d 990–94.

[72] Id. at 990.

[73] Ecology Center, 430 F.3d at 1064.

[74] Lands Council III, 537 F.3d 991–92.

[75] Id. at 992.

[76] Id. at 994–95.

[77] Id. at 995.

[78] Id. at 996.

[79] Lands Council III, 537 F.3d at 1001.

[80] Id.

[81] Id.

[82] Id. at 992–94, 1001 ; see also Ryan G. Welding & Michael E. Patterson, Maintaining the Ninth Circuit’s Clarified Arbitrary and Capricious Standard of Review for Agency Science After Lands Council v. McNair, 31 Pub. Land & Resources L. Rev. 55, 79–80 (2010).

[83] See Renshaw, supra note 12.

[84] See cases cited supra note 2.

[85] 601 Fed App’x 488 (9th Cir. 2015).

[86] Id. at 490.

[87] Id. (“The Forest Service relied on the Wakkinen Study, which is the best available science, and the Fish & Wildlife Service concurred in the Forest Service’s determination.”).

[88] Id.

[89] Id.

[90] 807 F.3d 1031 (9th Cir. 2015).

[91] Id. at 1035.

[92] Id.

[93] Id. at 1048.

[94] Id.

[95] Id.

[96] Id.

[97] Id.

[98] Id.

[99] Id. at 1049–50.

[100] Id. at 1049–51.

[101] 806 F.3d 1234 (9th Cir. 2015).

[102] Id. at 1235–36.

[103] Id.

[104] Id. at 1236.

[105] Id. at 1238–41.

[106] Id. at 1241–42.

[107] Id. at 1242.

[108] Id. at 1243.

[109] Id. at 1243–44.

[110] Id.

[111] Id.

[112] Id.

[113] Id. at 1244.

[114] Id.

[115] See cases cited supra note 50.

[116] See Conner v. Burford, 848 F.2d 1441, 1454 (9th Cir.1988); see also San Luis & Delta-Mendota Water Auth. v. Locke, 776 F.3d 971, 995 (9th Cir. 2014).

[117] See, e.g., San Luis & Delta-Mendota Water Auth., 776 F.3d at 995.

[118] Ctr. for Biological Diversity v. U.S. Fish & Wildlife Serv., 807 F.3d 1031, 1043 (9th Cir. 2015).

[119] See Pacific Coast, 426 F.3d 1082.

[120] See Marsh v. Or. Nat. Res. Council, 490 U.S. 360, 377 (1989.

 

This post is part of the Environmental Law Review Syndicate, a multi-school online forum run by student editors from the nation’s leading environmental law reviews.

__________________________________________

By Hume Ross, Staff Member Georgetown Environmental Law Review

Before World War II, Japanese Admiral Yamamoto wrote: “Because I have seen the motor industry in Detroit and the oilfields of Texas, I know Japan has no chance if she goes to war with America, or if she starts to compete in building warships.”[1] As he anticipated, after hostilities broke out the United States government quickly began to mobilize the nation’s considerable natural resources and manufacturing capacity.

The War Production Board (WPB) was established in 1942 in order to “increase, accelerate, and regulate the production and supply of materials, articles and equipment and the provision of emergency plant facilities . . . required for the national defense.”[2] The WPB and similar entities had the ability to determine how various raw materials would be used, set prices, and enter into novel contractual arrangements with defense contractors. Some contracts provided that contractors would operate temporary facilities owned by the government,[3] or be subject to recapture of excess profits.[4] Profit margins were typically low, but in return contractors sometimes received favorable contract terms to insulate them from unexpected costs.[5]

The Contract Settlement Act of 1944 (CSA) recognized that, because of the extent to which American industry had been integrated into the war effort, any issues with the payment of claims when the war ended could imperil the entire economy. The CSA provided procuring agencies with authority “notwithstanding any provisions of law” to “agree to assume, or indemnify the war contractor against, any claims by any person in connection with such termination claims or settlement.”[6]

As was the intent of these legislative and executive acts, American industry roared to life, flooding the operational theaters with ships, planes, tanks, ordnance and fuel, and propelled the Allies to victory. But this overwhelming effort had ill-effects as well. Due in part to both the extraordinary pace of production, and the less stringent environmental regulations of the time, large amounts of toxic chemicals were released at hundreds of sites around the country.

Three-and-a-half decades later, in the face of mounting public concern about environmental pollution, Congress enacted the Comprehensive Environmental Response, Compensation, and Liability Act (CERCLA).[7] CERCLA authorizes the Environmental Protection Agency, if it determines a site poses “an imminent and substantial endangerment to the public health,” to sue certain responsible parties for the costs of cleanup.[8] Many of the sites identified by the EPA under CERCLA (commonly called “Superfund” sites) are the product of the extraordinary war-time effort, and the extraordinary defense contracts that enabled it. This set the stage for decades of litigation to allocate financial responsibility for the cleanup between the contractors (and often their corporate successors) and the government.

1. CERCLA LIABILITY GENERALLY

CERCLA liability will attach to any entity that owns or operates a contaminated facility, or owned or operated a facility where hazardous substances were disposed of in the past, as well as a few other categories related to transporting or arranging for the improper release of hazardous materials.[9] CERCLA liability is strict, joint, and several.[10] This means that often one party may be compelled to begin cleanup (or reimburse EPA for beginning cleanup) and then will have to seek contribution from other liable parties.[11] The liability was structured this way to ensure that there would always be a party available to pay for cleanup, and to disincentive companies from engaging in prohibited activities. Even if a corporation sells a polluted facility before the pollution is discovered, they will still be liable as a “past owner” or “operator.” Courts often note that CERCLA should be construed liberally in view of its remedial purpose to achieve its twin goals: “(1) enabling the EPA to respond efficiently and expeditiously to toxic spills, and (2) holding those parties responsible for the releases liable for the costs of the cleanup.”[12]

Under these standards, both defense contractors and the government (which specifically waived sovereign immunity related to CERCLA claims)[13] may be liable for some of the cleanup costs. But the extent of liability for each party is determined by comparing the role that each played in causing the pollution. The characterization of which entity was an “operator” is significant because of the way courts equitably apportion CERCLA contributions among the responsible parties. There is no fixed formula – instead, courts look at various sets of factors. One such set is the “Gore” factors, named after an unsuccessful but nonetheless influential attempt to pass an amendment to CERCLA in 1980 by then-Representative Al Gore.[14] Another similar set of factors are known as the Torres factors.[15] A common theme is that liability will be more heavily apportioned to a party with more “knowledge and/or acquiescence […] in the contaminating activities.”[16] The tests established for the “operator” label tend to track closely with this language, and therefore being designated as an “operator” often leads to a large share of liability.[17] The analysis of which entity was “operating” a facility, or portion thereof, has evolved over time as discussed in the next section.

2. FMC Corp. Suggested Broad Government Liability Even for Regulatory Oversight

In 1994, the Third Circuit decided FMC Corp. v. United States.[18] The case established a framework by which the US government could be held liable as an “operator” for acts it took in a regulatory capacity. Commentators at the time were concerned that, because the government is the ultimate “deep pocket,” this could lead to a massive amount of CERCLA liability looping back onto the government.[19] While not explicitly overruled, FMC Corp. has been limited by subsequent cases. But the decision is still relevant as its fact pattern, while rare, is not unique in the WWII-era contracting context.

FMC Corp. concerned a facility located in Front Royal, VA (then owned by corporate predecessor American Viscose) that produced high tenacity rayon (“HTR”) for plane and vehicle tires. Ordinarily the tires would have used rubber, but 90% of the United States’ rubber supply came from the Pacific, which was cut off after Pearl Harbor.[20] The facility was in fact converted from producing textile rayon to HTR largely at the behest of the government.[21] In 1982, inspections revealed elevated levels of carbon disulfide in the ground water around the plant.[22] Carbon disulfide is a volatile organic compound capable of causing neurological damage with chronic exposure.[23]

After the EPA notified FMC of its potential liability under CERLA, FMC filed suit seeking monetary contribution from the government under section 113(f) of CERCLA.[24] FMC argued that the government was “so pervasively” involved in directing the activities at the facility that it should pay some, if not all, of the cleanup costs.[25] The government admitted that it effectively controlled many aspects of the operation at the American Viscose plant, but argued that it did so only in a regulatory capacity, and that it could not be held to be an “operator” for purposes of CERCLA when it was acting only as a regulator.[26]

The FMC Corp. court looked to cases in the parent-subsidiary liability context, and chose to apply the same “substantial control” and “active involvement” test to governmental actions for purposes of CERCLA liability.[27] The court found it important that, even if the government was primarily “regulating,” it:

“determined what product the facility would manufacture, controlled the supply and price of the facility’s raw materials, in part by building or causing plants to be built near the facility for their production, supplied equipment for use in the manufacturing process, acted to ensure that the facility retained an adequate labor force, participated in the management and supervision of the labor force, had the authority to remove workers who were incompetent or guilty of misconduct, controlled the price of the facility’s product, and controlled who could purchase the product.”[28]

The court ultimately found that the government was an “operator” of the plant.[29] To the extent that this result was not what Congress may have intended when it adopted CERCLA, the court noted that amending the statute was within the power of Congress, not the Courts.[30]

3. Bestfoods Narrowed the Operator Liability Standard

Four years later, the Supreme Court decided United States vs. Bestfoods.[31] Bestfoods dealt with the question of under what circumstances a corporate parent could be held liable as an operator under CERCLA for the actions of a subsidiary corporation. Because FMC Corp. and other earlier defense contract related decisions had examined governmental vicarious liability under CERCLA as being the same as the inquiry for a “non-governmental entity”,[32] Bestfoods would have a direct impact on government CERCLA liability.

Bestfoods found that a subsidiary “so pervasively controlled” by a parent such that it would warrant veil piercing in the corporate law context could be held derivatively liable for the acts of the subsidiary.[33] This is a high standard – even a parent and a subsidiary that share officers and directors will not necessarily meet it.[34] But even if the conduct of a parent would not warrant veil piercing, the court found that “CERCLA prevents individuals from hiding behind the corporate shield when, as ‘operators,’ they themselves actually participate in the wrongful conduct”.[35] Thus, “[u]nder CERCLA, an operator is simply someone who directs the workings of, manages, or conducts the affairs of a facility… specifically related to pollution, that is, operations having to do with the leakage or disposal of hazardous waste, or decisions about compliance with environmental regulations.”[36] This standard has been interpreted to require involvement in environmental decisions on a frequent, often “day-to-day” basis.[37]

It is unclear how FMC Corp. would have been decided under this standard. While it appears that the government did exercise some day-to-day control, it is not clear that this control had the required nexus to the actual pollution. What is clear is that this standard is intensely factual in nature. For all the record developed in FMC Corp., more might have been needed to determine if the government’s day-to-day input over personnel and other issues had the required nexus to the pollution.

4. Recent Cases Exemplify this Narrower Standard

Two recent cases demonstrate how much more difficult it is to assign “operator” liability to the government after Bestfoods. Exxon Mobil Corp. v. United States involved two sites in Louisiana where the production of avgas[38] for the war effort led to contamination of the Mississippi River.[39] Exxon argued that many activities at the site were performed out of fear that the refineries would be seized by the WPB if production quotas were not met.[40] The court rejected this argument, finding that the government acted more like a “very interested consumer,” and did not direct day-to-day activities.[41] The court also found persuasive that fact that some of Exxon’s contracts contained clauses stating that certain specifications and quantities would be “determined by negotiation,” as opposed to simply dictated by the government.[42]

Exxon further argued that government personnel were at the site every day, performing inspections. The court cited in response other post-Bestfoods cases where daily inspections related to contract compliance and worker safety were insufficient.[43] Ultimately, the government was not determined to be an “operator” of the avgas refineries under CERCLA.[44]

A second case, TDY Holdings, reached a similar result.[45] TDY was the corporate successor of several corporations which had operated a facility near San Diego international airport that performed aeronautical fabrication and testing as a contractor to the government between 1939 and 1999.[46] Even though it was undisputed that the government “owned some of the equipment related to the contamination, and observed and knew of TDY’s production processes and maintenance practices that released contaminates into the environment” the government was found to be merely a “past owner” and not an “operator.”[47] TDY argued that adherence to military specifications (mil specs) led inevitably to pollution, but the court found that the mil specs did not dictate how by-product chemicals should be managed, contained, or disposed of.[48] The court also explicitly distinguished FMC Corp. on the grounds that TDY actively sought out defense work, and was never “ordered, coerced, or forced” to operate as a defense plant.[49] TDY was assigned 100% of the cleanup costs as the “operator,” even though the government had been found to be a “past owner” of some facilities.[50]

5. Shell and I. DuPont establish the framework for litigation over indemnification clauses

With the window to assign the government “operator” liability in all but extreme cases closed, litigants have explored other ways to shift cleanup costs to the government. One method that has succeeded has been to rely on special indemnification clauses that were included in some WWII-era contracts. Unlike the in-depth factual analysis required to establish “operator” liability, this analysis involves primarily questions of law. Specifically, application of these clauses depends on whether or not the clauses extend to CERCLA liability (which was unforeseen at the time of their execution). If the clauses do cover CERCLA liability, it then must be examined whether or not the Anti-Deficiency Act prohibits payment of indemnification under the clauses and, if so, whether the ADA was effectively waived by the Contract Settlement Act of 1944.[51]

In 1940, the government contracted with E.I. du Pont to build a plant in Morgantown, WV to produce munitions-related chemicals. E.I. du Pont was to construct and operate the plant, but the facilities would be owned by the government. E.I. du Pont was to be paid a fixed fee for the operation of the plant, but the government affectively owned all of the output – there were no products “sold” to the government.[52] The contract contained an indemnification clause that read:

“the Government shall hold [E.I. du Pont] harmless against any loss, expense (including expense of litigation), or damage (including damage to third persons because of death, bodily injury or property injury or destruction or otherwise) of any kind whatsoever arising out of or in connection with the performance of the work”[53]

The court had no difficulty determining that this clause extended to CERCLA liability based on its broad, non-limited language.[54] The court then turned to the question of whether the Anti-Deficiency Act (ADA) barred payment under the indemnification clause. The trial court had determined that the ADA, which bars payments in excess of the amounts appropriated by Congress for a particular contract,[55] did bar payment of CERCLA indemnification. The Federal Circuit did not question this general conclusion, but instead focused on whether payment was otherwise “authorized by law” as an exception to the ADA.[56]

Specifically, the Federal Circuit considered whether the Contract Settlement Act of 1944 (CSA), designed to ensure rapid settlement of war related claims, could overcome the general prohibition of the ADA. The CSA provided that certain agencies;

“shall have authority, notwithstanding any provisions of law other than contained in this chapter, (1) to make any contract necessary and appropriate to carry out the provisions of this chapter; (2) to amend by agreement any existing contract, either before or after notice of its termination, on such terms and to such extent as it deems necessary and appropriate to carry out the provisions of this chapter; and (3) in settling any termination claim, to agree to assume, or indemnify the war contractor against, any claims by any person in connection with such termination claims or settlement.[57]

The Federal Circuit agreed with E.I. du Pont that this language “grant[ed] the President the authority to delegate to departments and agencies contracting power virtually unfettered by contract law, including the ADA”.[58] The case was remanded for entry of judgment in E.I. du Pont’s favor – the government would be liable for any CERCLA costs that might be imposed on E.I. du Pont.[59]

Subsequent cases have confirmed that if the CSA is applicable to the contract at issue, then the ADA restriction is not effective.[60] The only issue that remains is whether the particular indemnification clause is “(1) specific enough to include CERCLA liability or (2) general enough to include any and all environmental liability which would, naturally, include subsequent CERCLA claims.”[61] Shell Oil Co. v. United States concerned a contract where the relevant agency had agreed to pay “”any now existing taxes, fees, or charges . . . imposed upon [the Oil Companies] by reason of the production, manufacture, storage, sale or delivery of [avgas].”[62] The Federal Circuit held that future CERCLA liability was a “charge” within the meaning of the contract, and the government was therefore liable to reimburse Shell for it.[63]

The courts’ findings that certain WWII-era contractor indemnification clauses cover CERCLA liability makes this an attractive litigation tactic now that that it is more difficult to assign the government “operator” liability. Of course, not all contracts contained a version of either of the provisions discussed above. Those that did are more likely to be contracts of the type at issue in E.I. du Pont and FMC Corp., where the government and the contractor were undertaking a mode of operation that would not normally be undertaken outside of wartime. These extraordinary contracts are more likely to involve fact scenarios on which the government might also still be determined to be an “operator,” even under the narrow Bestfoods test. But even where the government might be deemed an “operator,” the indemnification clause strategy has the advantage of providing a complete bar to contractor liability as opposed to requiring apportionment, and also does not require intense factual investigation.

[1] Correlli Barnett, The Lords of War: Supreme Leadership from Lincoln to Churchill 163 (2012).

[2] FMC Corp. v. United States Dep’t of Commerce, 786 F. Supp. 471, 474 (E.D. Pa. 1992).

[3] E.I. du Pont de Nemours & Co. v. United States, 365 F.3d 1367, 1369-70 (Fed. Cir. 2004).

[4] Sixth Supplemental National Defense Appropriation Act, 1942, Pub. L. No. 77-528, ch. 247, § 403, 56 Stat. 226, 245 (1942).

[5] See, e.g., Shell Oil Co. v. United States, 751 F.3d 1282, 1287 (Fed. Cir. 2014).

[6] E.I. du Pont de Nemours, 365 F.3d at 1357 (Fed. Cir. 2004).

[7] Comprehensive Environmental Response, Compensation, and Liability Act of 1980, Pub. L. No. 96-510, 94 Stat. 2767 (codified as amended at 42 U.S.C. §§ 9601-9675 (1988)).

[8] Id. at § 9604.

[9] See 42 U.S.C.S. § 9607 (listing the categories of “covered persons”).

[10] Tanglewood East Homeowners v. Charles-Thomas, Inc., 849 F.2d 1568, 1572 (5th Cir. 1988); O’Neil v. Picillo, 883 F.2d 176, 178-79 (1st Cir. 1989).

[11] 42 U.S.C.S. § 9607.

[12] B.F. Goodrich Co. v. Murtha, 958 F.2d 1192, 1198 (2d Cir. 1992).

[13] See FMC Corp. v. U.S. Dep’t of Commerce, 29 F.3d 833, 842 (3^rd Cir. 1994).

[14] The “Gore” factors include: “(i) the ability of the parties to demonstrate that their contribution to a discharge release or disposal of a hazardous waste can be distinguished; (ii) the amount of the hazardous waste involved;

(iii) the degree of toxicity of the hazardous waste involved; (iv) the degree of involvement by the parties in the generation, transportation, treatment, storage, or disposal of the hazardous waste; (v) the degree of care exercised by the parties with respect to the hazardous waste concerned, taking into account the characteristics of such hazardous waste; and(vi) the degree of cooperation by the parties with Federal, State, or local officials to prevent any harm to the public health or the environment.” United States v. A & F Materials Co., 578 F. Supp. 1249, 1256 (S.D. Ill. 1984).

[15] See Exxon Mobil Corp. v. United States, 108 F. Supp. 3d 486, 534 (S.D. Tex. 2015).

[16] Weyerhaeuser Co. v. Koppers Co., 771 F.Supp. 1420,1426 (D. Md. 1991).

[17] See TDY Holdings, LLC v. United States, 122 F. Supp. 3d 998, 1015 (S.D. Cal. 2015) (“In circumstances where the Government was found to be such an “operator” due to its control or management, in whole or in part, of the disposal practices at a site, courts have found it equitable to burden the Government with a substantial portion of the

remediation expenses.”).

[18] FMC Corp., 29 F.3d at 833.

[19] See Van S. Katzman, The Waste of War: Government CERCLA Liability at World War II Facilities, 79

Va. L. Rev. 1191, 1193, 1232 (1993).

[20] FMC Corp., 29 F.3d at 836.

[21] Id. at 835.

[22] Id.

[23] U.S. Department of Health and Human Services, Agency for Toxic Substances and Disease Registry, Toxicological Profile for Carbon Disulfide (Update) (1996).

[24] 42 U.S.C.§ 9613(f).

[25] FMC Corp., 29 F.3d at 835.

[26] The government also argued that it had not waived sovereign immunity for purposes of CERCLA liability for purely regulatory actions, but the court disagreed with this contention. Id at 836.

[27] Id. at 843.

[28] Id. (emphasis added).

[29] Id. at 845.

[30] Id. at 846.

[31] United States v. Bestfoods, 524 U.S. 51 (1998).

[32] FMC Corp., 29 F.3d at 840.

[33] Bestfoods, 542 U.S. at 64 n. 10.

[34] Id. at n. 12.

[35] Bestfoods, 542 U.S. at 65 (quoting Riverside Market Dev. Corp. v. International Bldg. Prods., Inc., 931 F.2d 327, 330 (5th Cir. 1991)).

[36] Bestfoods, 524 U.S. at 65-66.

[37] Exxon Mobil Corp., 108 F. Supp. 3d at 529-30 (quoting City of Wichita, Kansas v. Trs. Of APCO Oil Corp. Liquidating Trust, 306 F. Supp. 2d 1040, 1055 (D. Kan. 2003)).

[38] Avgas was a revolutionary 100-octane fuel that, when used to replace the 87-octane fuels previously used in combat aircraft, increased their speed without requiring significant modifications to the engine. See Sustainable Technology Forum, Chemists explore WWII ‘miracle’ aviation fuel, available at http://sustainabletechnologyforum.com/chemists-explore-wwii-miracle-aviation-fuel_9396.html (last visited June 26^th 2016).

[39] Exxon, 108 F. Supp. 3d at 491.

[40] Id. at 523-24.

[41] Id. at 523.

[42] Id. at 498.

[43] Id. at 525.

[44] The government was determined to be an operator of several discrete facilities related to the litigation, including an ordinance shop. This finding was based on correspondence showing that the government “made specific decisions about waste disposal and environmental compliance,” was aware of the pollution, and decided to continue polluting. The ordinance works was described as “resembl[ing] a United States Army base more than a chemical plant” in terms of who actively managed it and its operational procedures. Id at 530-32.

[45] TDY Holdings, 122 F. Supp. 3d at 1003.

[46] Id. at 1003.

[47] Id. at 1004, 1021-22.

[48] Id. at 1016-17.

[49] Id.

[50] Id. at 1022.

[51] See generally Andrew P. Lawson, Casenote: The End of a War Does not End its Adversarial

Reach: The Federal Government’s Indemnification of World War II Contractors for Toxic Waste Cleanup Resulting from Wartime Manufacturing Efforts in Shell Oil Co. et al. v. United States, 26 Vill. Envtl. L.J. 363 (2015).

[52] E.I. du Pont de Nemours, 365 F.3d at 1369-70.

[53] Id. at 1370.

[54] Id. at 1373.

[55] Id. at 1374.

[56] Id.

[57] Id. at 1375 (emphasis as added in decision).

[58] Id. at 1376 (quoting Johns-Manville Corp. v. United States, 12 Cl. Ct. 1, 33-34 (1987)).

[59] Id. at 1380.

[60] See, e.g., Shell Oil Co., 751 F.3d at 1301.

[61] E.I. du Pont de Nemours, 365 F.3d at 1373 (quoting Elf Atochem N. Am. v. United States, 866 F. Supp. 68, 870 (E.D. Pa. 1994)).

[62] Shell Oil Co., 751 F.3d at 1287.

[63] Id. at 1284. Reyna, J. dissented, primarily on the ground that the provision in question was located in a section of the contract related to taxes and, interpreted in that context, CERCLA liability was not a “charge.” Id at 1303-05.