Environmental Defense v. Duke Energy: Take 1

This argument analysis was written by Paul Gutermann, an attorney at Akin Gump. It is the first of two entries that we will bring you today about yesterday’s argument in this case.

The oral argument in Environmental Defense v. Duke Energy meandered between the jurisdictional and the substantive issues, with none of the Justices showing much respect for the jurisdictional arguments raised by the Petitioners or, surprisingly, for the legal reasoning of either the 4th Circuit opinion by Judge Motz or the 7th Circuit opinion by Judge Posner. The likely outcome on the substantive issues, by contrast, is more uncertain.

The jurisdictional issue raised in this case related to Section 307(b) of the Clean Air Act, which provides that challenges to EPA regulations having nationwide effect may be pursued only in the D.C. Circuit and must be raised within ninety days of promulgation. The 4th Circuit opinion held that the new source review (NSR) emissions increase regulations were invalid because the Clean Air Act required that the same standard apply in measuring emissions increases for the new source performance standards (NSPS) and NSR. The 7th Circuit, in a related case not yet before the Supreme Court, suggested that the 4th Circuit had exceeded its authority in violation of Section 307(b). Taking up the cudgel, Petitioners argued that the Duke case should be reversed and remanded on these jurisdictional grounds.

The substantive issue before the Court involved application of the NSR regulations to construction projects at coal-fired power plants. The Clean Air Act requires “new” construction at major stationary sources to emit at levels less than the NSPS limits and to undergo NSR, a preconstruction permitting program. Existing facilities are not subject to either NSPS or NSR unless they are “modified” within the meaning of the statute. Under the Clean Air Act, a source is modified if, inter alia, it undergoes a physical change that causes an emissions increase. The term “modification” is defined for NSR purposes by cross-reference to the NSPS definition. According to the 4th Circuit, the EPA was therefore required to apply identical definitions in the regulations and, accordingly, the same tests for emissions increases. There is no dispute that the emissions increase test for NSPS purposes is measured by increases in kg/hour; i.e., an “hourly rate” test. Petitioners argue that the emissions increase test for NSR purposes is tons per year of actual emissions; i.e., an “annual rate” test. Duke argued that the test for NSR purposes is both an increase in hourly rate and an increase in annual rate.

Sean Donahue, representing Environmental Defense and arguing first for Petitioners, tried to focus on the substantive issue, but was continually dragged back to arguing jurisdiction. Donohue based his argument on the premise that the NSR regulations were “clear on their face,” a claim Chief Justice Roberts termed “audacious.” While seemingly mundane, the issue of whether the regulations are ambiguous has paramount importance for both the substantive and jurisdictional arguments. Echoing EPA’s arguments throughout its so-called utility enforcement initiative, Donahue argued that, since 1980, the NSR regulations measured NSR emissions increase by reference to tons per year of pollutant.

Justice Scalia immediately pounced on Petitioners’ claim that the regulations were not ambiguous, forcing Donahue to concede that in 1981 the Director of the Stationary Source Compliance Division, Edward Reich, had issued applicability determinations consistent with the theory of emissions increase pressed by Duke. Donahue backtracked and argued that the Reich determinations contradicted Duke’s theory, but the damage had already been done. As Justice Alito noted, if the EPA official responsible for enforcing the program could interpret the regulations differently from EPA’s current approach, the regulations must be ambiguous.

Proceeding upon the position that regulations are ambiguous, several Justices, led by Justice Scalia, expressed concern over companies like Duke being “whipsawed.” Justice Scalia posited Duke may have proceeded upon assurances by an agency (here, the 1981 Reich decisions) that regulations mean one thing and then, after the jurisdictional window for seeking preenforcement review in the D.C. Circuit had passed, changing the interpretation and being told that any challenges to the statutory validity of the new interpretation is time-barred. Such a result is even more perverse here because, for complex reasons, industry’s challenges to the 1980 regulations had been stayed. Duke argued that when those petitions for review were revived in 2004, the D.C. Circuit ruled that issues regarding the standard for measuring emissions increases was not ripe.

Thomas Hungar, of the Solicitor General’s office, argued for the United States and picked up on the concern over “whipsawing” of parties like Duke. While Hungar repeatedly tried to argue that Duke had had notice of EPA’s interpretation far earlier than 2000, when the enforcement action commenced and that Duke had actually litigated the issue in the D.C. Circuit, but seemed to make little headway with the Court. As characterized by Justice Kennedy, if the Court were to hold that the 4th Circuit exceeded its jurisdiction, “courts [would] have to take as binding a legal proposition that they think is dead wrong . . . .”

Turning to the substantive issue, the Justices seemed to signal more of a split in views. Both sides conceded that, given the statutory language, EPA had sufficient discretion to measure emissions increases by hourly rate or annual rate. Petitioners argued that EPA had the discretion to have one test for NSPS and a different one for NSR. Duke argued, alternatively, that whichever test was adopted, it had to be the same for both, or that EPA had to be more explicit if it were to adopt different tests.

Justice Scalia peppered Hungar with a line of questioning to the effect that, if the statutory definition is the same, the regulatory definition must be also, or the statutory language stating that the definition of the term be the same was “meaningless.” Justice Breyer then drew attention to the heart of Duke’s argument, namely that the EPA regulations exclude from the definition of physical change – an element of a “modification” – increases in the hours of operation or production rate. Continuing with the logic, Justice Breyer asked whether a physical change that does nothing to increase the capacity of an emitting unit, but allows it to run more hours, would be excluded from the definition by its terms.

Hungar answered with EPA’s stock answer – that an emitting unit may respond to increase in demand by operating more hours without triggering NSR, so long as there is no physical change. Hungar responded that, once there is a physical change, the “hours of operation exclusion has no relevance.” Running out of time, Hungar turned the argument over to Duke.

Carter Philips, arguing for Duke, immediately arguing that no one understood the regulations to mean what EPA now says they mean until EPA commenced the enforcement actions in 1999. Justice Ginsburg then asked, if that was the case, why anyone sought applicability determinations from EPA. This question led to a long discussion of two prior court of appeals decisions arising from EPA applicability determinations, WEPCO from the 7th Circuit and Puerto Rico Cement from the 1st Circuit, written by then Circuit Judge Breyer.

Taking the lead in questioning, Justice Breyer indicated his view that Puerto Rico Cement was an indication that, as early as 1987, EPA’s interpretation was the same as it was asserting now. Philips strove to distinguish the issues in the two cases from that raised by Duke, but it remains to be seen how effectively he did so. Noting further that the NSR program 681301.0001 intended to prevent a source from increasing emissions by operating more hours, Justice Breyer postulated in contrast to the questioning by Justice Scalia, that “you can use the same word, you can apply the same word in different places differently, depending on what your basic object is in the different place.”

The argument then turned to the question of whether Duke had abandoned the rationale adopted by the 4th Circuit. Phillips emphatically argued that Duke had not abandoned that argument, but noted that it had alternative grounds to support that result. Philips argued that Duke was relying both upon a general principle that when Congress defines a term identically, it should be defined identically in the regulations and that in this instance, there was significant ancillary support for the proposition that the congress intended for the term to be defined identically.

Finally, Justice Scalia referenced an EPA regulation applicable only when there is no applicable state implementation plan, Section 52.01(b), that makes reference to “emissions rate” (emphasis added). Justice Scalia seemed to read that term as referring to hourly rate, while Donahue on rebuttal indicated his view that the term could also refer to annual rate.

The substantive issues presented are not going to go away regardless of how the Court rules on jurisdiction. The 7th Circuit decision is back in the District Court for the Southern District of Indiana and the 11th Circuit is gearing up for briefing in a related case arising in that Circuit.