Stakes high for agencies as justices weigh key rulemaking tool

Source: Jeremy P. Jacobs, E&E reporter • Posted: Tuesday, September 30, 2014

When the Supreme Court returns this week, its docket will be missing the high-profile environmental cases that dominated last term.

There are no challenges to President Obama’s greenhouse gas program for addressing climate change, nor is there anything on U.S. EPA’s effort to clamp down on air pollution that drifts across state lines.

“The Supreme Court had its fill of environmental cases last term,” said Thomas Lorenzen, a former Department of Justice environmental attorney now at Dorsey & Whitney LLP.

But what it lacks in traditional environmental litigation it makes up for with personality and cases that — while not directly environmental — could set important precedents for EPA and other agencies. And the court could still grant a multistate challenge to a major EPA air rule for later this term.

Consider Yates v. United States, which centers on the search of commercial fisherman John Yates’ boat in the Gulf of Mexico.

Regulators suspected that some of Yates’ 3,000-fish catch was under the 20-inch harvesting minimum for red grouper, which are protected for conservation. After measuring them, they found 72 were too small.

The next day, they found just 69 undersized fish.

Three years later, the Department of Justice charged Yates with destruction of evidence for the three fish. It did so using an “anti-shredding” provision of the Sarbanes-Oxley Act of 2002, a white-collar statute that was enacted following the Enron energy scandal.

Under the law, a suspect who “knowingly alters, destroys, mutilates, conceals, covers up, falsifies or makes a false entry in any record, document or tangible object” can be prosecuted.

DOJ claimed that Yates had destroyed a “tangible object,” and the 11th U.S. Circuit Court of Appeals agreed. It sentenced Yates to 30 days in prison. The justices, in November, will weigh whether that term can apply to fish (Greenwire, April 28).

After Yates, environmental lawyers will most closely watch a pair of cases involving Department of Labor minimum wage and overtime policies.

The cases stem from the department’s decision in 2010 to change its interpretation of an exemption for employees whose primary duty is selling financial products.

After previously saying mortgage bankers qualified for the exemption — meaning employers don’t need to adhere to the minimum wage and overtime requirements — the department reversed itself.

The department issued its change in policy in an “interpretive rule” without a notice-and-comment period. The Mortgage Bankers Association challenged the department, and the U.S. Court of Appeals for the District of Columbia Circuit agreed.

When “an agency has given its regulation a definitive interpretation, and later significantly revises that interpretation, the agency has in effect amended its rule, something it may not accomplish [under the Administrative Procedure Act] without notice and comment,” the D.C. Circuit ruled.

The ruling poses a problem for EPA, which has increasingly used interpretative rules to set policy, said William Buzbee, an environmental law professor at Georgetown Law School.

“Because of the legislative gridlock [on Capitol Hill], EPA has been making more by law interpreting existing law,” he said, “because [of], frankly, the need for a lot of questions to be answered.”

The ruling immediately poses a problem for EPA’s “Waters of the United States” regulatory proposal, which seeks to establish what streams, bogs, marshes and other wetlands qualify for federal protections. After issuing the proposal in March, EPA also carved out more than 50 agricultural exemptions in an interpretive rule (Greenwire, April 4).

Solicitor General Donald Verrilli, in asking the Supreme Court to take the cases, Perez v. Mortgage Bankers Association and Nickols v. Mortgage Bankers Association, said the D.C. Circuit ruling would significantly hamstring agencies.

“An agency thus must now undertake notice-and-comment rulemaking simply to explain to the public that the agency has corrected or revised its previous legal interpretation of a regulation in some significant way — even if no one has ever relied on the prior interpretation,” Verrilli wrote.

Buzbee said the practical effect would be to “ossify the process” for interpretive rules. The justices will hear arguments in the case at the beginning of December.

Water disputes

The Supreme Court will also wade into a long-standing water use dispute between Kansas and Nebraska.

Kansas claims Nebraska is violating an interstate compact that governs the Republican River, which runs from northeast Colorado and along the Nebraska-Kansas border before flowing south in the Missouri River.

The state alleges that Nebraska is taking more water than it is allocated from the Bostwick Division Project, a Bureau of Reclamation facility straddling the two states’ border. The dispute dates back to the 1980s, and centers on Nebraska installing new groundwater pumps for agricultural irrigation.

Kansas v. Nebraska and Colorado marks the second time in two terms that the Supreme Court has grappled with interstate water compact issues, after visiting a Texas-Oklahoma dispute last year (Greenwire, June 13, 2013). (Colorado is included in the case only because it is also part of the compact.)

The justices are also set to consider whether to review another — between Texas and New Mexico — this week.

Other cases on the docket include OneOK Inc. v. Learjet Inc., in which the justices will consider whether natural gas sellers who engaged in market manipulation during the 2000-02 California energy crisis are shielded from state-level antitrust lawsuits by federal law. The San Francisco-based 9th U.S. Circuit Court of Appeals held that they are not protected by the federal statute (Greenwire, July 1).

The court will also consider two cases brought against federal agencies that deal with legal deadlines for filing lawsuits. Both United States v. Wong — a immigration deportation case — and United States v. June — a wrongful death suit — raise the question of whether the statute of limitations on a Federal Tort Claims Act case against the government can be extended for various uncontrollable circumstances. Parties use the statute to file lawsuits against many agencies, including the Interior and Defense departments, for a variety of reasons, including environmental damage.

In both cases, the 9th Circuit held that the legal deadline for filing the suit could be extended, or equitably tolled (Greenwire, July 10).

Why the dearth of enviro cases?

But none of those are the type of blockbuster environmental cases that have marked the recent Supreme Court terms, leading some to speculate that the justices may be tired of them.

Richard Lazarus, the prominent Harvard environmental law professor, counted four high-profile environmental cases last spring in which industry asked the court for review and the justices declined to take them up — including a challenge to EPA’s unusual decision to rescind a Clean Water Act permit for a West Virginia strip-mining project years after the Army Corps of Engineers issued it (Greenwire, March 24).

In all of those cases, major industry players, including the U.S. Chamber of Commerce, urged the court to reverse a lower-court ruling that they claimed would have a major effect on the economy. The court also declined to review a challenge to California’s low-carbon fuel standard, a case that some court watchers expected it to grant (Greenwire, June 30).

Lazarus said the justices may be beginning to see through industry’s dire warnings.

“My guess is, in part, that in the short term, industry has cried wolf too many times,” Lazarus said. “It gets a little old.”

Roger Martella, the former EPA general counsel, now at Sidley Austin LLP, said the lack of environmental cases may have more to do with timing. In the last year or so, the Obama EPA hasn’t produced as many major rulemakings, so there have been fewer high-profile cases that would be Supreme Court-worthy.

“My view on the Supreme Court is that it tends to be cyclical on when we see a lot of environmental cases,” he said.

The most significant recent rules from EPA are still in the proposal stage. Those regulations — its greenhouse gas standards for new as well as existing plants, and its waters of the United States rule — are sure to generate lawsuits that could reach the Supreme Court.

“The court took a heavy docket of air cases last term, and everyone expects the government’s attempt to define the waters of the United States to produce a major case down the road,” said Willy Jay, a former Department of Justice attorney now at Goodwin Procter LLP.

And there is still room on the docket for the court to grant a major environmental case this term. More than 20 states and several utilities have asked the Supreme Court to review EPA’s air standards for mercury and other hazardous pollutants — a major regulation from Obama’s first term.

The U.S. Court of Appeals for the District of Columbia Circuit upheld the rules in a 2-1 ruling in April. The justices will consider whether to take up the case later this year (Greenwire, July 15).

Absent that, though, Vermont Law School environmental professor Pat Parenteau said, this year’s term is a “dud.”

“It’s the first time in a while that we don’t have a blockbuster environmental case on the docket,” he said.