B&D is pleased to present our 2024 Litigation Look Ahead series. In this compilation, our litigation team highlights recently decided or pending cases, many before the U.S. Supreme Court, that could carry significant outcomes and ramifications for our current and potential clients.

• Part one of the series covers the future of Chevron deference
• Part two covers the major questions doctrine
• Part three covers administrative enforcement issues
• Part four covers Fifth Amendment “regulatory” takings
• Part five covers the Comprehensive Environmental Response, Compensation, and Liability Act (CERCLA)
• Part six covers natural resource law

40 Years of Chevron Deference, Administrative Law Precedent Hangs in the Balance

Chevron Deference: The “Voldemort” of Administrative Law

This first installment examines two U.S. Supreme Court cases that call into question 40 years of precedent related to judicial deference granted to agency rulemakings(Loper Bright Enterprises, et al. v. Raimondo, No. 22-451, and Relentless, Inc. v. U.S. Dep’t of Commerce, No. 33-219). In reviewing these cases, there are indications the Court may overturn its landmark decision in Chevron v. Natural Resources Defense Council, placing new limits on agency power and making it easier for businesses to challenge federal — including environmental — regulations.

Last year, John Cruden, Principal and Co-Chair of B&D's Litigation practice, said, "Chevron in the Supreme Court has been like the Dark Lord Voldemort in the Harry Potterbooks — not to be mentioned by name.” Our specific analysis follows.

Case Summary

On January 17, 2024, the Supreme Court heard highly anticipated oral arguments in the consolidated cases Loper Bright Enterprises, et al. v. Raimondoand Relentless, Inc. v. U.S. Dep’t of Commerce. Though the cases arise under the Magnuson-Stevens Act, a law intended to promote sustainable fisheries and aquatic conservation, they center on the Supreme Court’s decision in Chevron v. Natural Resources Defense Council.

In 1984, the Court in Chevron set forth a legal test known as the “Chevron deference,” articulating when and how courts must defer to a government agency’s interpretation of a law. Under Chevron, when a statute is ambiguous on a particular issue, a court may not substitute its interpretation of the statute; instead, an agency’s interpretation of that statute must be upheld so long as it is “reasonable.” This doctrine has shaped administrative law for decades, with the underlying notion that a government agency has the particular expertise to fill the gaps in complex laws.

In Loper Bright and Relentless, Petitioners are family-operated fishing companies challenging a provision of the Magnuson-Stevens Act, which requires commercial fishing vessels to carry onboard observers who monitor fishermen’s catch. The National Marine Fisheries Service, a federal agency, interpreted the law to require the fishermen to pay for the observers. In challenging this rule, Petitioners have asked the Court to overrule Chevron after both the U.S. Court of Appeals for the District of Columbia in Loper Bright and the U.S. Court of Appeals for the First Circuit in Relentless found the agency’s interpretation of the law “reasonable.” Because Justice Ketanji Brown Jackson previously served on the panel that decided Loper Bright at the D.C. Circuit, she recused herself, risking a 4-4 tie. The grant of certiorari in Relentless permits the full bench to decide on the issue.

Implications

Administrative law is the bedrock of the legal environmental world, and under Chevron, courts favor agency interpretations of highly technical statutes. Should the Court overturn or undercut the holding of Chevron, federal agencies, including environmental regulators, will likely face a tougher battle in court against rulemakings challenges. Therefore the Loper Bright and Relentless decisions could have far-reaching impacts on stakeholders and governmental regulators in the environmental sphere.

Arguments have been made forcefully on both sides. Conservative members of the Court have vocalized their opposition to Chevron; Justice Clarence Thomas wrote in 2015 that Chevron “wrests from Courts the ultimate interpretive authority…and hands it over to the Executive.” Solicitor General Elizabeth B. Prelogar, representing Respondents in Loper Bright, wrote in Court filings that altering Chevron would “draw federal courts into resolving policy questions and exacerbate the potential for inconsistent results,” which would be a “convulsive shock to the legal system.”

Without Chevron, courts may revert to case-by-case decision-making, which could limit or call into question federal regulations affecting every sector of the national economy, including environmental regulations, where statutory language is often less than clear. In such circumstances, regulated industries will likely bring and win more challenges to federal regulatory actions, potentially to their benefit and potentially to the detriment of regulatory stability and legal certainty. In fact, businesses may desire more certainty on some issues than the agency regulatory process can afford, but that may be difficult to accomplish through legislation in a closely divided Congress.

Although agencies would no longer be entitled to the same level of deference if Chevron is overturned, there is a wide range of potential tests that could be implemented in its place. For example, during oral arguments, the Petitioners suggested that Skidmore would be the standing precedent if nothing new is implemented, which acknowledges the agency's important role and knowledge of policy in considering an agency position.

Furthermore, the Court generally has not relied on Chevron deference in recent years. In the 2019 Kisor decision, the Court evaluated Auer deference, which applies when an agency is interpreting its own regulations. Following clarifications in Kisor about circumstances warranting deference in regulatory interpretations, the Court has also focused on step one in its analysis of ambiguity in statutory interpretation, stopping short of the step two analysis that would require deference to an agency’s reading. This might suggest that the practical impact is lessened—if the courts are not finding statutes ambiguous, then there is nothing to defer to.

As one of the most-cited Supreme Court cases, Chevron has been instrumental in environmental law for the past 40 years, particularly with respect to federal statutes like the Clean Air Act and Clean Water Act. If overturned or substantially modified, there is no doubt it will have a profound impact on environmental jurisprudence for years to come.

Increased Application of Major Questions Doctrine Could Limit Regulatory Authority

In this edition, we highlighted recently decided or pending appellate court cases examining the major questions doctrine and the scope of regulatory authority. These cases, which could end up before the U.S. Supreme Court, will affect how courts address future challenges to environmental regulations, potentially making it easier to dispute agency rulemakings.

North Carolina Coastal Fisheries Reform Group v. Capt. Gaston LLC, No. 21-2184

Case Summary

In this case, the plaintiff, North Carolina Coastal Fisheries Reform Group, sued shrimp trawlers operating in North Carolina’s Pamlico Sound for allegedly violating the Clean Water Act (CWA) by engaging in unpermitted activity. They argued that throwing bycatch overboard was a “discharge of a pollutant” requiring a National Pollutant Discharge Elimination System permit from the U.S. Environmental Protection Agency (EPA) and that trawl nets’ disturbance of sediment was considered an “excavation” requiring a Section 404 permit from the Army Corps of Engineers.

On August 7, 2023, the U.S. Court of Appeals for the Fourth Circuit affirmed a lower court decision that the North Carolina Coastal Fisheries Reform Group failed to plausibly allege that shrimp trawlers violated the CWA. In doing so, the court invoked the major questions doctrine, a powerful, relatively new principle elucidated by the recent U.S. Supreme Court case West Virginia v. EPA (2022). Find B&D's thorough analysis of the West Virginia decision and its impacts here.

Quoting West Virginia, the Court of Appeals explained that in “extraordinary cases” involving interpretive questions of vast “economic and political significance,” a clear statement of congressional authorization for the agency’s action is required (this reasoning is referred to as the major questions doctrine). In its opinion, the Fourth Circuit identified several factors to consider when evaluating whether agency action implicates a “major question”: “when the Act’s structure indicates that Congress did not mean to regulate the issue in the way claimed”; where “there is a different ‘distinct regulatory scheme’ already in place to deal with the issue which would conflict with the agency’s newly asserted authority”; where the agency had failed to invoke the newly asserted authority previously; when the asserted authority raises federalism concerns; and “when the asserted authority falls outside the agency’s traditional expertise.” North Carolina Coastal Fisheries Reform Group v. Capt. Gaston LLC,76 F.4^th 291, 297 (2023) (citations omitted). Applying these factors to the case, the Court of Appeals first determined that the major questions doctrine applied, primarily because EPA regulation of the discharge of bycatch to state waters would have “significant political and economic consequences” and would represent a vast expansion of EPA’s regulatory authority.

The court then analyzed the CWA and concluded that the statute did not set forth “clear congressional authorization” for the EPA to regulate the release of bycatch to state waters. The CWA’s use of the “expansive” and vague term “biological materials” in its definition of “pollution” is not sufficient to demonstrate that Congress intended to delegate such authority to EPA. Also, the court said, a “distinct regulatory scheme” already exists under the Magnuson-Stevens Act that grants states primary authority over state waters. Additionally, requiring a permit for the release of bycatch to state waters would raise federalism issues and cause widespread economic impacts throughout the country.

Implications

The major questions doctrine has been expanded in recent years. On the heels of the West Virginiadecision, the Supreme Court invoked the doctrine in concluding that the Biden Administration’s plan to forgive $430 billion of federal student loans was a “major question” lacking clear statutory authorization. Fisheries Reform Group illustrates how, in the post-West Virginia world, lower courts are invoking this doctrine more frequently as a basis for limiting federal agency regulatory authority when the issue(s) presented potentially implicate significant political and economic concerns.

This shift could have a significant impact on environmental litigation involving agency regulatory actions, as agencies frequently rely on statutes originally enacted decades ago to address problems that were not recognized or considered when the legislation was initially adopted. Modern agency interpretations, formulated to meet today’s environmental challenges, may not clearly or fully align with existing statutory text, inviting application of the major questions doctrine.

Texas v. NRC, No. 21-60743

Case Summary

A petition for rehearing en banc is currently pending for an August 25, 2023 decision by the U.S. Court of Appeals for the Fifth Circuit, which vacated a U.S. Nuclear Regulatory Commission (NRC) license granted to Interim Storage Partners to build and operate a consolidated interim storage facility for commercial spent nuclear fuel in Texas. In that ruling, the Fifth Circuit held that NRC did not have the authority under the Atomic Energy Act (AEA) to issue licenses for private parties to store spent nuclear fuel away from the reactor site, because “the Nuclear Waste Policy Act (NWPA) creates a comprehensive statutory scheme for addressing spent nuclear fuel accumulation…” and private offsite storage of spent nuclear fuel is contrary to Congressional policy expressed in the statute.

The NWPA plainly and unambiguously provides that, “until there’s a permanent repository, spent nuclear fuel is to be stored onsite at-the-reactor or in a federal facility.” The Fifth Circuit relied on the plain language of the AEA and NWPA, though it also invoked the major questions doctrine to reinforce its view that NRC lacked legal authority to issue the license. Judge Ho explained that the disposal of nuclear waste was an issue of great economic and political significance; as such, the court would not defer to NRC’s interpretation of the AEA’s licensing provisions. Under West Virginia, questions of “such magnitude and consequence” are reserved for Congress or an agency acting pursuant to clear delegation from Congress.

Implications

This decision creates a federal circuit court split between the U.S. Court of Appeals for the District of Columbia Circuit’s ruling in Bullcreek v. Nuclear Regulatory Commission and the U.S. Court of Appeals for the Tenth Circuit decision in Skull Valley Band v. Nielson, which may prompt Supreme Court review. As with North Carolina Coastal Fisheries Reform Group, referenced above, Texas v. NRC illustrates how the relatively novel major questions doctrine is being applied more frequently by federal courts to curtail agency authority in the face of statutory ambiguity. The decision could also significantly impact the licensing of private, offsite reactor spent fuel storage facilities, if the Fifth Circuit’s interpretation of the licensing provisions of the AEC stands.

Texas v. EPA, No. 22-1031

Case Summary

In 2021, EPA finalized greenhouse gas emissions standards for light-duty vehicles for model years 2023 through 2026 (the 2021 Rule), replacing a less-stringent Safer Affordable Fuel-Efficient Vehicle Rule. Pursuant to section 202(a) of the Clean Air Act (CAA), EPA is required to establish standards for emissions of air pollutants from new motor vehicles that cause or contribute to air pollution that is anticipated to endanger public health.

In 2022, 15 states, including Texas, filed a petition for review of the standards in the U.S. Court of Appeals for the D.C. Circuit.

In their petition, the states argue the 2021 rule runs afoul of the major questions doctrine because the CAA does not authorize EPA to require vehicle manufacturers to produce more electric vehicles and “threaten the reliability of the electric grid[.]” In addition, the states argue the 2021 rule is arbitrary and capricious due to flawed “social cost” analysis of greenhouse gas estimates in relation to potential national security concerns. Oral arguments took place on September 14, 2023. The decision is pending.

Implications

The court’s ruling could impede the implementation of EPA’s proposal to dramatically cut emissions from model year 2027 cars and light trucks. A determination that EPA’s greenhouse gas emissions standards implicate the major questions doctrine could invite similar challenges to other technology-forcing standards and regulations under major environmental statutes, a trend that would have far-reaching impacts on the move towards electrification of vehicles and beyond.

In Conclusion

Successful invocation of the major questions doctrine in these and other cases challenging environmental and other kinds of regulatory actions will significantly affect the scope of future litigation. Regulatory agencies relying on decades-old statutes may see their modern rulemakings more frequently challenged as courts question long-standing administrative interpretations of arguably ambiguous statutes. This retroactive judicial review of regulations years after they were finalized could create an unstable regulatory environment. Congress must attempt to speak even more clearly with respect to its intended limits on regulatory agency authority when drafting statutes - no small challenge for a closely divided Congress.

Challenges to Administrative Law Judges, Judicial Review Process Could Limit Executive Power

In this section of the compilation, our team highlighted two pending Supreme Court cases examining the constitutionality of appointed administrative law judges and the judicial review process under the Administrative Procedure Act. The outcome of these cases could have significant ramifications on the enforcement power of the executive branch and the deadline for challenging final agency actions.

Securities and Exchange Commission v. Jarkesy, No. 22-859

Case Summary

The Securities and Exchange Commission (SEC) brought a civil enforcement action against George Jarkesy and an investment advisor, alleging securities fraud. SEC utilized the agency’s in-house administrative adjudication procedures to pursue the matter. SEC’s administrative law judge (ALJ) found Jarkesy and his co-defendants liable and ordered various remedies. The defendants pursued administrative appeals, unsuccessfully, and then sought review in the U.S. Court of Appeals for the Fifth Circuit. In May 2022, the Fifth Circuit held that the SEC’s use of ALJs to enforce civil securities laws violates the accused’s Seventh Amendment right to a jury trial. The Fifth Circuit further found the SEC’s administrative courts unconstitutional because the appointed judges are protected from removal, in violation of Article II of the Constitution, and Congress improperly granted the SEC legislative power by allowing the agency to decide whether to sue in administrative or federal court. The SEC petitioned the U.S. Supreme Court for certiorari, which it granted, and oral arguments took place on November 29, 2023.

Implications

The case challenges the constitutionality of appointed ALJs to resolve disputes. While Jarkesy only pertains to the SEC’s use of ALJs to enforce securities laws, EPA and many other federal agencies rely on in-house civil administrative proceedings to enforce laws, in lieu of civil actions in court. If the Supreme Court affirms the Fifth Circuit’s decision, the ruling could have broader impacts by eliminating or restricting the ability of other agencies to use ALJs. Such a result would channel more enforcement cases to the courts, a more time-consuming, resource-intensive, and costly process. Limiting the enforcement power of the executive branch would greatly impact how agencies enforce statutes and their regulations. A ruling in favor of the petitioners could also call into question the past decisions of ALJs. To minimize the enormous consequences of such a decision, the Supreme Court may find a middle ground, focusing on limitations on the Seventh Amendment right to a jury trial in the context of agency enforcement actions.

Corner Post, Inc. v. Board of Governors of the Federal Reserve System, No. 22-1008

Case Summary

The U.S. Supreme Court is considering a circuit split regarding the six-year statute of limitations for Administrative Procedure Act (APA) challenges, a cornerstone of environmental litigation. Under the APA, any person who claims to have been injured by an agency’s action has the right to go to court to challenge the action, but they must file their action within six years after the “right of action first accrues.”

In this case, Corner Post, Inc., the operator of a convenience store and truck stop, challenged the Federal Reserve’s debit card interchange rules, known as Regulation II, which set the range of fees larger card-issuing banks can charge merchants for processing debit card payments, asserting the rules were promulgated in violation of the APA. The rules were adopted in 2011. Corner Post, which opened for business seven years later in 2018, argued that the statute of limitations does not begin to run until a plaintiff suffers a “legal wrong” or becomes “adversely affected or aggrieved,” as required by 5 U.S.C. § 702. Consequently, the statute of limitations did not apply to bar its claim because the “adverse affect” of the challenged rule did not occur until 2018.

A North Dakota federal district court dismissed the case as untimely because the six-year statute of limitations expired in 2017. The U.S. Court of Appeals for the Eighth Circuit affirmed, holding that the six-year statute of limitations for facial challenges to regulations brought under the APA accrues upon publication of the final rule. In this ruling, the Eighth Circuit followed the majority position that the APA claims first accrued upon publication of the final agency action. Corner Post, Inc. filed a petition for certiorari, which was granted, and the case is now before the Supreme Court.

Implications

The Supreme Court heard oral arguments in the case on February 20, 2024. The precise question before the Court is whether a facial challenge to a regulation, brought under the APA, accrues when the regulation is first published or when the plaintiff first suffers a related “legal wrong” or an “adverse affect.” At oral arguments, the Justices questioned Corner Post’s position. In particular, Justice Ketanji Brown Jackson seemed concerned that a ruling favoring Corner Post would put every agency rule in effect in question, subject to facial challenges whenever a regulated entity claims to have first suffered a related harm.

The outcome of this case could have major impacts on the ability of regulated entities to assert facial challenges to regulations under the APA. If the Supreme Court reverses and holds that the statute of limitations accrues when a party is first injured, plaintiffs will be permitted to challenge a regulation—no matter the promulgation date—so long as they commence the cause of action within six years of the initial harm. Such a holding could open floodgates within the judicial system, creating a pathway for parties to challenge long-settled regulations, leading to perennial regulatory instability.

In Conclusion

The decisions in both Jarkesy and Corner Post could significantly affect the executive branch’s ability to enforce statutes and regulations as well as litigants’ options for bringing judicial challenges. In either case, Supreme Court decisions in favor of the petitioners would magnify the effect of other decisions that may alter how courts approach administrative law questions, such as the pending decisions regarding Chevron deference.

A ruling in favor of the petitioner in Jarkesy could unravel a complex system of administrative adjudication and expedite a litigant’s access to the crowded federal courts. A ruling in favor of the petitioner in Corner Post could change how courts apply the statute of limitations for APA challenges to agency actions and open the door to such claims years, or even decades, after regulations are published. Such rulings would eliminate long-standing obstacles in the path to federal court.

Furthermore, if the Supreme Court strikes down or limits Chevron deference, vastly different criteria would apply when federal courts review agency actions. This combined impact of the three cases could potentially mark a revolution in administrative law litigation, with the landscape fundamentally altered to provide regulated entities more opportunities to challenge agency action in federal court, freed, to some extent, from the agency-favorable doctrine of Chevron deference, allowing the judiciary more opportunity to shape agency action.

In Property Takings Cases, Court Must Strike Careful Balancing Act Between Regulating Land Use, Protecting Property Rights

Our team examined two Fifth Amendment takings cases currently before the U.S. Supreme Court that could affect the government’s ability to regulate land use legislatively as well as property owners’ right to bring takings claims against states.

Refresher - What is the Constitution’s Takings Clause?

The Fifth Amendment of the U.S. Constitution, applicable to the states through the Fourteenth Amendment, prohibits the government’s taking of private property without payment of just compensation. The courts have established a body of law to determine what government actions affecting the use of private property constitute a “taking” requiring just compensation. These actions include not only the physical seizure of private property but also, in limited circumstances, government regulation of private property that is so restrictive that it amounts to a taking. This is often seen when the government imposes land use regulations. “Regulatory” takings jurisprudence involves the court's balancing of government actions and their effects on the property’s economic value or the extent to which the act interferes with the reasonable expectations of the property owner.

The Fifth Amendment’s Takings Clause is vital to protecting private property rights from excessive government regulation or other conduct that significantly burdens private property. The cases below demonstrate how private property owners and state and local governments are continually testing its boundaries, asserting substantive and procedural arguments which provide the U.S. Supreme Court the opportunity to strengthen or erode its protections.

Sheetz v. County of El Dorado, California, No.22-1074

Case Summary

In 2016, George Sheetz applied for a permit to build a manufactured home on his property in El Dorado County, California. In response, El Dorado County officials informed Mr. Sheetz they would grant him a permit if he paid a traffic impact fee of more than $23,000, citing its Traffic Impact Mitigation fee program as the basis for the fee. The program, established to finance the construction and widening of roads, authorizes the County to impose fees on builders of new developments. Mr. Sheetz paid the fee under protest and then sued the County, alleging the fee violated the Takings Clause of the Fifth Amendment. Specifically, Mr. Sheetz argued that U.S. Supreme Court precedent requires that if a government compels someone to give up property in exchange for a land use permit, it must show that such a condition is closely related and roughly proportional to the effects of the proposed use. In an unpublished decision, the California trial court rejected Mr. Sheetz’s arguments and upheld the fee, holding that because the statute authorized the fee, it was immune from Nollanand Dolanreview (explained below). The California Court of Appeal affirmed, and the California Supreme Court denied review.

The U.S. Supreme Court granted cert on September 29, 2023, and heard oral arguments on January 9, 2024. The Court appeared split during the arguments, with some Justices seeming to agree that conditions imposed on the exercise of property rights are subject to heightened scrutiny, while other Justices questioned how such scrutiny would even be applied.

Implications

Ultimately, this case turns on a dispute over the reach of prior Supreme Court precedent from the cases Nollan v. California Coastal Commission, 483 U.S. 825 (1987) and Dolan v. City of Tigard,512 U.S. 374 (1994), landmark decisions addressing the contours of government authority to regulate land use. The NollanCourt held that all permit conditions imposed on land development must relate to the actual harm caused by the development. The DolanCourt expanded the scope of Nollan,holding that such government demands must be sufficiently proportional to the actual impacts of the proposed use.

The County argues that the nexus and proportionality test established by Nollan and Dolan is limited to conditions imposed administratively and does not apply to conditions imposed legislatively. Specifically, the County argues that legislation that creates a fee schedule or formula that applies equally to categories of similar properties without seeking any dedicatory interest in land is exempt from such analysis.

Should Mr. Sheetz prevail, the Supreme Court would effectively close what some developers see as a loophole to current precedent. The Supreme Court has the opportunity to expand the Nollanand Dolanprecedents to include exactions created by statute. While some may see this as strengthening property rights, local and state governments are concerned that such an expansion would limit, or in some cases eliminate, their authority to enact programmatic land use regulations and charge fees to groups of similarly situated property owners. If the Court expands Nollan/Dolan review to include legislatively imposed development fees, it would impose a significant administrative burden on state and local governments by requiring case-by-case scrutiny.

Devillier v. Texas, No. 22-913

Case Summary

Several property owners in Texas filed separate inverse-condemnation suits against the state under the Fifth Amendment’s Takings Clause and its Texas Constitution counterpart after a state highway project caused widespread flooding on their properties. The Texas Department of Transportation raised the highway’s elevation, added additional lanes, and installed a three-foot traffic barrier on the highway’s centerline to ensure the south side of the highway would remain dry in wet weather and could be available as an evacuation route in the event of a flood. The property owners allege that water that would have otherwise flowed south into the Gulf of Mexico was stopped by the traffic barrier, causing their land – located on the north side of the highway - to flood during heavy rainfall.

The State of Texas removed the cases to the U.S. District Court for the Southern District of Texas and had them consolidated into a single action. The state then moved for judgment on the pleadings, arguing that the property owners could not bring their inverse condemnation claims in federal court directly under the Fifth Amendment without a statutory basis, such as 28 U.S.C. § 1983. (As the property owners pointed out in the petition for writ of certiorari, Texas state courts recognize a takings claim under the U.S. Constitution without requiring a statutory basis. It is only because the State of Texas removed the case to federal court – which changed the substantive law governing the case – that the argument that a statutory basis for the claim became relevant.) The District Court denied the motion but allowed for an interlocutory appeal. The U.S. Court of Appeals for the Fifth Circuit reversed, holding that “the Fifth Amendment Takings Clause as applied to the states through the Fourteenth Amendment does not provide a right of action for takings claims against a state.” The property owners appealed to the U.S. Supreme Court.

The Supreme Court granted cert on September 29, 2023, and heard oral arguments on January 16, 2024. Justices from both ends of the political spectrum recognized that the State of Texas’s position and its “procedural maneuvering” would effectively extinguish the right of private property owners to "just compensation” when the government takes their property for public use. Several justices also recognized that the state’s position appeared to conflict with First English Evangelical Church v. County of Los Angeles, 482 US. 304 (1987). The core holding in First English, that the Fifth Amendment’s Takings Clause is “self-executing”, such that inverse condemnation claims seeking just compensation for a government “taking” do not require a separate statutory basis, was affirmed in Knick v. Township of Scott, Pennsylvania, 139 S. Ct. 2162 (2019). Chief Justice Roberts, who authored the opinion in Knickand more recent takings case, Cedar Point Nursery v. Hassid,594 U.S. 139 (2021), noted that the state’s position creates "a Catch-22… you say they have to proceed in—in state court. They can't proceed in federal court. And as soon as they do, you remove it to federal court…where you say they can't proceed?" Justice Roberts added that this sort of reasoning was "rejected in Knick." The questions and comments of the various justices at oral argument suggest that the Supreme Court is disinclined to reach a result that would allow states to avoid takings liability by utilizing the procedural tactics deployed by the State of Texas, or which would require overruling Knick.

Implications

If Texas prevails, the decision will reverse decades of constitutional precedent that allows property owners to seek just compensation from the government under the Fifth Amendment’s Takings Clause. Instead, property owners would be barred from bringing a takings claim under the Fifth Amendment against anystate until Congress passes a statute that declares states are subject to the Fifth Amendment. Luckily for property owners, the Justices indicated during oral argument that they disagreed with the approach suggested by Texas. Reversing the Fifth Circuit will strengthen the rights of property owners and send a clear message to states looking to avoid takings liability.

In Conclusion

In these regulatory takings cases, the U.S. Supreme Court has the opportunity to protect the government’s ability to enact programmatic land use regulations and strengthen the rights of property owners looking to bring takings claims against states. These cases reflect the Court’s careful balancing between the government’s need to regulate property development and the reasonable expectations of the property owner.

Key Cases That Could Impact CERCLA Liability and Contribution Claims

In this edition, we examined various issues relating to CERCLA, including a case pending before the U.S. Supreme Court considering bankruptcy courts’ ability to resolve third-party claims against parties that have not filed for bankruptcy. Additionally, this installment looks at two cases that the Supreme Court declined to review related to the statute of limitations for subsequent contribution claims under CERCLA Section 113(f) and the question of whether the clear error or abuse of discretion standard applies for equitable allocations under CERCLA Section 113(f)(1).

Bankruptcy Dilemma: The Debate Over Third-Party Releases in Chapter 11

Case Summary

This case arises out of Purdue Pharma L.P.’s application for Chapter 11 bankruptcy following settlement of mass tort litigation claims relating to the opioid epidemic against Purdue and individual members of the Sackler family.

The Sackler family did not file for bankruptcy but agreed to personally contribute approximately $5.5 to $6.0 billion to the Purdue bankruptcy in exchange for releasing all direct and derivative claims against the Sackler family through that proceeding. This condition, and others, were mediated amongst a group of interested parties. Eventually, the bankruptcy court approved the plan.

The U.S. District Court for the Southern District of New York vacated the approval, holding that the Bankruptcy Code does not allow for releases of third-party claims against non-debtors. The U.S. Court of Appeals for the Second Circuit reversed, holding that two sections of the Bankruptcy Code, 11 U.S.C. § 105(a) (providing the bankruptcy court with its equitable authority) and 11 U.S.C. § 1123(b)(6) (permitting the approval of a plan that is consistent with the Bankruptcy Code), jointly provide the bankruptcy court authority to approve a plan that contains the nonconsensual release of third-party causes of actions against non-debtors.

The U.S. Supreme Court accepted the petition for cert to consider the release of third-party claims in a bankruptcy plan. The Court heard oral arguments on December 4, 2023.Harrington v. Purdue Pharma, L.P., No. 23-124

Implications

Should the Supreme Court affirm the Second Circuit’s holding, the decision will permit the bankruptcy court to resolve claims by third parties against parties that have not themselves filed for bankruptcy. Such a decision could surface in bankruptcies involving Chapter 11 parties with CERCLA liability, among others.

The approval of a plan permitting the release of third parties would still face multiple hurdles, such as the need for the overwhelming support of the plan by creditors; the fair payment of creditors’ claims; and the assessment of the appropriateness of the scope of the release, the importance of the releases to a debtor’s reorganization, and overall equity. The court will also assess the potential impact of the release on the bankruptcy property, which could involve extensive discovery for the released direct claims.

This lengthy process provides at least some opportunity for those concerned about the bankruptcy of a potentially responsible party (PRP) to be heard and oppose a plan with third-party releases. But in practice, resolution of contaminated sites moves slowly, and parties risk having their rights extinguished before they are even identified as a PRP.

Under Pressure: CERCLA Contribution Statute of Limitations May Start Sooner Than You Realize

Case Summary

Last fall, the United States Supreme Court denied certiorari for a U.S. Court of Appeals for the Sixth Circuit, holding that a declaratory judgment establishing liability for response costs triggered the statute of limitations for subsequent contribution claims under CERCLA Section 113(f). Importantly, the declaratory judgment, as the Sixth Circuit described it, only established liability – it did not allocate that liability or any response costs among potentially responsible parties (PRPs). The Sixth Circuit explained that the three-year statute of limitations for contribution actions begins to run at the issuance of the declaratory judgment because it established liability for future remedial work. The declaratory judgment satisfied Section 113(g)(3)(A)’s limitation that “[n]o action for contribution for any response costs or damages may be commenced more than 3 years after…the date of judgment in any action under this chapter for recovery of such costs or damages.” (emphasis added). Georgia-Pacific Consumer Products LP v. NCR Corp., 32 F.4th 534, 546 (6th Cir. 2022); petition denied, 144 S.Ct. 69(Oct. 2, 2023).

Implications

The Sixth Circuit’s holding, and the Supreme Court’s denial of the petition, should put PRPs on notice that the statute of limitations for contribution actions may begin running sooner than anticipated. The Sixth Circuit made clear that it is not necessary to allocate costs or liability for the statute of limitations to begin running – an order establishing liability for any response costs starts the clock. PRPs should promptly investigate the potential liability of other parties with relationships to a CERCLA site and consider filing contribution claims as soon as practicable. This can be difficult when PRPs simultaneously investigate and remediate a site.

Even armed with factual distinctions separating a given site from this case, parties should avoid the risks of running afoul of the statute of limitations, which could result in a bar to their contribution claims.

CERCLA Equitable Allocation Review: SCOTUS Cert. Denial Leaves Circuits Split

Case Summary

The U.S. Supreme Court denied Columbia Falls Aluminum Co., LLC’s petition of a U.S. Court of Appeals for the Ninth Circuit decision holding that a district court’s equitable allocation of environmental response costs under CERCLA Section 113(f)(1) should be reviewed on appeal for clear error.

The issue in the case was the appropriate standard of review on appeal of an allocation of liability between two parties for the cleanup of the hazardous waste originating at an aluminum smelting site in Columbia Falls, Montana. Columbia Falls argued that the Ninth Circuit should have used the abuse of discretion standard rather than the clear error standard. Atlantic Richfield argued that there was simply an insignificant difference in terminology between the clear error standard and the abuse of discretion standard and, therefore, no genuine circuit split. The Supreme Court denied Columbia Falls Aluminum Co., LLC’s petition on October 2, 2023. Columbia Falls Aluminum Co. v. Atlantic Richfield, No. 22-1207

Implications

Because the Supreme Court denied the petition for certiorari, the federal circuit court split remains on the question of whether a clear error or abuse of discretion standard applies for equitable allocations under CERCLA Section 113(f)(1). It is also possible that the Supreme Court agreed that the standards are effectively the same. But without express guidance as to the potential distinction between the clear error and abuse of discretion standards, PRPs should consider the differing standards for a district court’s equitable factor analysis when weighing appeals. The U.S. Courts of Appeal for the Fourth, Fifth, and Ninth Circuits have held there is a clear error standard, while the First, Second, Third, Sixth, Seventh, Tenth, and D.C. Circuits have held there is an abuse of discretion standard.

In Conclusion

An affirmance in Harrington would permit bankruptcy courts to resolve claims by third parties against parties that have not themselves filed for bankruptcy. This could be an issue in bankruptcies involving Chapter 11 parties with CERCLA liability, among others.

PRPs should also note that the Supreme Court’s denial of certiorari to consider the CERCLA contribution statute of limitations means that a declaratory judgment establishing liability for response costs triggers the statute of limitations for subsequent contribution claims under CERCLA Section 113(f).

Additionally, the Court’s certiorari denial in Columbia Falls Aluminum Co. means that the federal circuit court split remains on the question of whether the clear error or abuse of discretion standard applies for equitable allocations under CERCLA Section 113(f)(1). PRPs should take note of which circuit they are in when considering appeals.

SCOTUS’ Pass on Cases Sets Up Continued Fight Over Tribal Water Rights, State Mineral Development Cases in Coming Year

Our litigation team examined two cases involving tribal water rights and state permitting authority over mining and mineral development that the U.S. Supreme Court declined to review. In light of the Court’s declinations, tribal water rights disputes could continue to increase, and states’ permitting authority and mineral development rights remain in question.

Klamath Irrigation District v. U.S. Bureau of Reclamation, No. 22-1116 (Tribal Water Rights)

Case Summary

In 2019, two irrigation districts in Oregon and other water users sought to enjoin a Bureau of Reclamation plan to use stored water in the Upper Klamath Lake to augment instream flows in the Klamath River to benefit endangered species and tribes in southern Oregon and northern California and to limit the amount of water available to the irrigation districts. The districts argued that the federal government only had the right to store water in the Upper Klamath Lake, not use it. Both the Hoopa Valley Tribe and Klamath Tribe intervened as of right in the lawsuit and moved to dismiss the case on the ground that they were required parties under Rule 19 of the Federal Rules of Civil Procedure in that they had interests in the water that the U.S. Environmental Protection Agency's (EPA) decision would impair. Due to tribal sovereign immunity, they could not join as defendants. In May 2021, a magistrate judge agreed with the Tribes and recommended the case's dismissal. In September 2021, the U.S. District Court for the District of Oregon adopted the recommendation and dismissed the challenge. The districts appealed, arguing that the Tribes were not required parties because the Bureau of Reclamation adequately represented their interests. In September 2022, the U.S. Court of Appeals for the Ninth Circuit upheld the dismissal. The appellate court found that the Bureau of Reclamation’s and Tribes’ interests were not fully aligned: The Bureau’s overriding interest was in complying with environmental laws, while the Tribes had a competing, sovereign interest in ensuring their citizens’ continued access to natural resources. Importantly, the Ninth Circuit held that the “Tribes’ water rights are “at a minimum coextensive with [the Bureau’s] obligations to provide water for instream purposes under the [Endangered Species Act],’” and that the disposition of the districts’ case could “impair[]” “the Tribes’ long-established reserved water rights.”

The districts petitioned the U.S. Supreme Court for certiorari. They argued that, under the McCarran Amendment, the United States’ waiver of sovereign immunity to adjudicate water rights extends to reserved water rights the government holds on behalf of tribes, and that, absent this, state-adjudicated water rights would be rendered meaningless against the federal government if any tribe objected. Both the Bureau of Reclamation and the Tribes argued that the McCarran Amendment does not apply to this case because it only applies to challenges involving an adjudication or the administration of water rights. On October 30, 2023, the Supreme Court declined to grant certiorari, finding that the case involved the District’s and the Tribes’ competing claims to a finite natural resource and there was no way to shape relief to avoid prejudice to the Tribes, which could not be joined in the action absent a waiver of their sovereign immunity.

Implications

Although the Supreme Court declined to hear the case, litigation involving tribal water rights and water rights more generally will likely continue to increase. As water becomes more scarce and disputes over the resource increase, courts will continue to ensure that the rights of all interested parties, including tribes, are recognized and, to the extent possible, protected. Following the Ninth Circuit’s decision, parties seeking to challenge agency actions that implicate tribal water rights must involve the tribes in discussion and negotiation and ensure that all parties with established water rights can be joined in any litigation so that an adjudicating court can grant appropriate relief.

Alaska v. U.S. & Michael Regan, No. 22-0157 (Mining and Mineral Rights)

Case Summary

In February 2023, EPA blocked a proposed copper and gold mine, the Pebble Mine, and similar extraction projects within approximately 300 square miles in Southwest Alaska. 88 Fed. Reg. 7441 (Feb. 3, 2023). In July 2023, the State of Alaska asked the U.S. Supreme Court to reverse EPA’s decision and allow Pebble Mine and similar projects to proceed. EPA issued its decision under CWA Section 404(c), allowing the agency to bar certain waters of the United States from being used as disposal sites for the discharge of dredged or fill material for the construction and routine operation of the proposed mine. Alaska’s complaint argues that EPA’s veto overrides state authority, which violates Alaska’s Statehood Act and effectively creates a new federal preserve.

The United States argued that this case does not fall within the narrow class of disputes warranting the Court’s original jurisdiction and that Alaska’s claims do not rise to the “seriousness and dignity” the Court has required to exercise its jurisdiction. The United States contended that there is nothing distinctly sovereign in Alaska’s claims and that the State has other, fully adequate, federal forums available to challenge the agency’s final agency action, including federal district court under the Administrative Procedure Act or the U.S Court of Appeals under a special statutory review procedure, and the Court of Federal Claims to seek monetary compensation for an alleged taking.

On January 8, 2024, the Supreme Court declined to hear the case, but this challenge is far from over. On March 14, 2024, Alaska filed a complaint against the United States in the U.S. Court of Federal Claims The State argues that the federal government violated a 1976 land swap agreement under which the United States received 700,000 acres of land to create Lake Clark National Park and Preserve in exchange for giving the State federal lands, including the Bristol Bay watershed where the Pebble mine would be located. Alaska argues that there is no other economically productive activity that can occur on these lands, and therefore, the EPA’s final determination has deprived the State of all of the lands’ value. The State seeks compensation under the Fifth Amendment’s taking clause.

In addition, the developers of the proposed mine filed a separate lawsuit in the U.S. Court of Federal Claims alleging similar Fifth Amendment violations. On March 15, 2024, the developers also filed a complaint against the EPA in U.S. District Court for the District of Alaska. The developers claim EPA’s action in vetoing the proposed mine was arbitrary and capricious in violation of the APA because it failed to consider the decision’s economic impacts and overestimated the protected waters that would be impacted by mining activity.

Implications

First, EPA’s decision could have a lasting impact on Alaska’s economy. The State’s complaint estimates that Pebble Mine alone would provide more than $100 million in annual revenue through state taxes, licensing fees, and royalty payments. Second, the decision threatens further mineral development in Southwest Alaska. As the global economy puts ever-greater emphasis on sources of renewable energy and emerging technologies, rare metal mines such as those proposed at the Pebble Mine site are becoming increasingly important as sources of supply and for their contributions to economic vitality. Finally, if the ongoing challenges of this decision fail, EPA could use its authority under the CWA to undermine states’ permitting authority for such mines and deprive states of the benefit of their mineral rights.

In Conclusion

The Supreme Court’s denial of certiorari in Klamath Irrigation District leaves the Ninth Circuit’s decision in place. That decision emphasizes that the tribes have a sovereign interest in ensuring their citizens’ continued rights to access to water from the Klamath River, but that they cannot be joined in the action absent a waiver of their sovereign immunity. Accordingly, parties challenging agency actions involving access to water must ensure that all parties with established rights to the water, including tribes, are involved in any discussions or negotiations and that they can be properly joined in any litigation so that the court can fashion meaningful relief.

In Alaska, the Supreme Court’s decision not to exercise its original jurisdiction leaves the EPA’s decision blocking the Pebble Mine in place for now. The agency’s decision is subject to further challenge, but if it is ultimately upheld, it could effectively undercut states’ permitting authority and their mineral development rights.

B&D’s litigators are actively involved in and monitor cases in courts nationwide. With decades of experience in toxic torts, class actions, Superfund and site remediation, enforcement defense, regulatory challenges, and business and contract disputes, our litigation team is well-equipped to handle diverse legal matters.