CITIZEN SUIT WATCH: Fifth Circuit Rejects District Court Rulings for Defendant in Clean Air Act Citizen Suit and Draws New Lines on “Ongoing” Violations and Civil Penalty Factors

On August 18, the U.S. Court of Appeals for the Fifth Circuit denied rehearing and upheld its May decision rejecting a district court’s ruling that had denied most of plaintiffs’ Clean Air Act (CAA) enforcement claims and refused to award any civil penalties or injunctive relief. In Environment Texas Citizen Lobby, Inc. v. ExxonMobil Corp., a case involving thousands of alleged CAA violations from Exxon’s operation of a refinery and two petrochemical plants in Texas, the Fifth Circuit held that the district court erred in its assessment of Exxon’s liability by conflating two distinct, but overlapping, claims of permit violations and by taking an overly restrictive view of what constitutes “repeated” or “ongoing” violations under the CAA’s citizen suit provision. The Fifth Circuit also found that the district court abused its discretion when analyzing three of the Act’s civil penalty factors (economic benefit of noncompliance; duration of the violation; and seriousness of the violation). The extensive and detailed decision breaks some new ground on these topics and should be reviewed by those subject to CAA citizen enforcement.

I. Background and District Court Proceeding

Exxon’s Baytown industrial complex is governed by five operating permits issued under Title V of the CAA, which incorporate numerous federal and state regulatory requirements. These permits also incorporate state permits issued pursuant to Texas’s State Implementation Plan program. Each of Exxon’s permits contains a Maximum Allowable Emission Rate Table (MAERT), which lays out the maximum rates that particular pollutants can be emitted from specific sources. The permits also incorporate the Texas “HRVOC Rule,” which limits the emissions of “highly reactive volatile organic compounds” to 1,200 pounds per hour, as well as the federal regulations that prohibit visible plant flare emissions for periods exceeding five minutes every two hours. Finally, each permit contains many “special conditions.” Most relevant to this case are special conditions 38 and 39, which prohibit emissions from any upset event or unscheduled maintenance, startup, or shutdown activity.

Plaintiffs sued Exxon under the CAA’s citizen suit provision in December of 2010. The CAA’s citizen suit provision allows a person to bring a civil action “against any person…who is alleged to have violated… or to be in violation of… an emission standard or limitation under [the Act].”¹ The CAA also provides that in a citizen suit a “penalty may be assessed for each day of violation.”² Under this provision, Plaintiffs alleged that Exxon violated several permit terms thousands of times over the course of eight years starting from October 2005. Specifically, Plaintiffs raised seven counts in their complaint, five of which are at issue in the appeal: Plaintiffs alleged violations of permit conditions that specifically prohibited upset emissions (Count I), MAERT emissions (Count II), emissions of highly reactive volatile organic compounds and plant flare emissions (Counts III and IV). Plaintiffs further alleged violations of regulatory requirements reflected in “deviation reports” that Exxon submitted to TCEQ, the state regulatory agency (Count VII).

On December 17, 2014, the U.S. District Court for the Southern District of Texas issued findings of fact and conclusions of law denying most of Plaintiffs’ claims following a thirteen-day bench trial. The district court found few “actionable” violations and declined to impose any civil penalties, issue a declaratory judgment, or grant injunctive relief. The district court concluded that only 94 of the thousands of alleged permit violations were actionable and declined to order any of Plaintiffs’ requested relief. Plaintiffs appealed the decision to the Fifth Circuit.

II. Fifth Circuit Opinion

On appeal, the Fifth Circuit found that the district court: (1) erred in finding a total of only 94 actionable violations; (2) abused its discretion in declining to impose any penalties at all; (3) erred in failing to properly consider whether Exxon received an economic benefit from delayed implementation of the TCEQ projects; and (4) abused its discretion in improperly offsetting both the duration and seriousness of certain violations with shorter and less serious violations. Each of these findings is discussed below.

A. Liability

Under Count I, Plaintiffs alleged that (i) Exxon violated permit provisions prohibiting upset emissions in any amount, and (ii) every emission of a pollutant during each recorded “emissions event” violated special conditions 38 and 39. Under Count II, Plaintiffs alleged that the “emissions events” encompassed over 13,000 days of violations of the MAERTs of the applicable permits. In the Fifth Circuit’s view, the district court conflated Plaintiffs’ Count I and Count II allegations in concluding that there were no actionable violations under Count I for the same reason that there were very few actionable violations under Count II.³ The district court erroneously viewed Count I as alleging MAERT violations as opposed to independent violations of special conditions 38 and 39. The Fifth Circuit acknowledged some overlap between Plaintiffs’ Counts I and II, but clarified that Plaintiffs alleged that each emission of each pollutant during upset events or unscheduled maintenance, startup, or shutdown activities constituted a violation of special conditions 38 and 39 regardless of whether they also exceeded MAERT limits.

The Fifth Circuit next vacated the district court’s judgment on Count II (MAERT limits), after determining that the district court’s analysis requiring Plaintiffs to prove repeated violations of the “same, specific” permit limitations was unduly restrictive. For a CAA violation to be “actionable” in a citizen suit, the plaintiff must prove either a “repeated violation of the same emission standard” or “violation of the same emission standard or limitation both before and after the complaint was filed.”⁴ The district court interpreted this to mean that Plaintiffs had to prove repeated violations of identical numerical emission limits and thus, if a MAERT limit for a specific pollutant from a specific source changed over time (due to permit renewals or amendments), a new standard or limitation was at issue.

The Fifth Circuit, however, found that the district court erred when it determined that any time the listed “emission limit” in Plaintiffs’ tables varied numerically, a new permit “standard of limitation” was at issue. Following precedents from the Clean Water Act context, the Fifth Circuit held that, “at least with respect to specific limits on particular pollutants from particular sources that change numerically due to amendments or renewals,” such limits constituted the same “standards” or “limitations” for purposes of determining “repeated” or “ongoing” violations under the CAA’s citizen suit provision. Therefore, the court concluded that limits on emissions of specific pollutants from specific emission points should constitute emission standards or limitations that may be violated repeatedly under the CAA citizen suit provision.

With respect to Counts III and IV, the Fifth Circuit overturned the district court’s finding that certain violations regarding emissions of highly reactive volatile organic compounds and emissions from flares were “uncorroborated” by Plaintiffs’ evidence. At trial below, Exxon had conceded that alleged violations in Counts II, III, and IV constitute violations of an emission standard or limitation, and the district court expressly found that Exxon indeed violated standards and limitations under those counts. Nonetheless, the district court treated Count II differently than Counts III and IV by assuming that each Count II event alleged by Plaintiffs was a violation while requiring evidence to corroborate each Count III and IV event as a violation. The Fifth Circuit characterized this differential treatment between Count II and Counts III and IV as “irreconcilably inconsistent,” and thus, it directed the district court to include all Count III and IV violations that it had previously rejected as “uncorroborated.”

Last, the court found that Plaintiffs’ argument on appeal relating to Count VII was unpersuasive. Plaintiffs alleged over 4,000 additional Title V permit violations based on Title V deviation reports submitted by Exxon to TCEQ. Plaintiffs argued that the district court should have ruled that the incidents were actionable because Exxon failed to rebut the evidence of violations contained in reports. The Fifth Circuit rejected this argument as Plaintiffs did not show any support that the deviation reports sufficiently established violations and that the district court did not err in concluding that these reports did not meet Plaintiffs’ burden of proof.

B. Civil Penalties and other Remedies

The Fifth Circuit reversed the district court’s decision not to order civil penalties, finding that the district court abused its discretion in assessing several of the statutory penalty factors. While courts are not mandated to order civil penalties under the CAA,⁵ courts must take into consideration seven statutory factors when deciding whether to impose penalties.⁶ Four of the seven penalty factors were at issue on appeal: the economic benefit of noncompliance; the duration of the violation; the seriousness of the violation; and the violator’s full compliance history and good faith efforts to comply.

The Fifth Circuit first found that the district court did not abuse its discretion in determining that the “compliance history and good faith efforts to comply” factor weighed against imposing a penalty. The Fifth Circuit interpreted the district court’s discussion on the infeasibility of achieving full compliance to be a comment on the complexity of the emitting facility rather than an attempt to raise impossibility as a defense to imposing penalties. Thus, the Circuit concluded that the district court correctly analyzed this penalty factor.

As for application of the remaining three penalty factors at issue, the Fifth Circuit found that the district court erred and abused its discretion. Under the “economic benefit of noncompliance” factor, the district court erred by failing to consider evidence of the benefit Exxon received from delaying implementation of four environmental improvement projects by TCEQ. The Fifth Circuit emphasized that, even though Plaintiffs’ economic benefit expert used a reliable methodology for calculating economic benefit, the district court nevertheless failed to treat those four projects as potentially indicative of economic benefit from noncompliance.

Turning to the “seriousness of the violation” and “duration of the violation” factors, the Fifth Circuit found that the district court abused its discretion when it viewed (i) violations of long and short durations as effectively offsetting each other; and (ii) more serious violations and less serious violations as effectively offsetting each other. The Fifth Circuit summarily rejected the district court’s determination that both of those factors were neutral overall. Regarding duration, the Fifth Circuit noted that had Plaintiffs alleged only the violations that were of “long” duration, the district court could not have declared the duration factor to be neutral by pointing to shorter violations and the variability in duration. Regarding seriousness, the Fifth Circuit found that, if anything, the existence of thousands of smaller violations would increase the overall degree of severity, not tip the scale against the assessment of a penalty by somehow making the serious violations less so.

Plaintiffs’ appeal was unsuccessful as to the other two remedies sought―a declaratory judgment and a permanent injunction. The Fifth Circuit agreed with the district court that a declaratory judgment would not serve a useful purpose. The Fifth Circuit also affirmed the district court’s refusal to grant a permanent injunction. Both courts concluded that even though Exxon had the resources to comply with a permanent injunction, any injury to the public would not outweigh the damage to Exxon caused by an injunction.

The Fifth Circuit vacated the district court’s judgment and remanded the case to the district court for new proceedings both on what violations are properly considered “actionable” and the assessment of civil penalties. Exxon petitioned for the Fifth Circuit for rehearing en banc on July 11, 2016. The Fifth Circuit denied the petition on August 18 without discussion.

III. Implications

The Fifth Circuit’s decision appears to mark the first time that a federal appeals court has held that multiple violations of the emission limits imposed on a particular source, even where those limits have been modified pursuant to permit renewals or amendments, constitute “repeated” or “ongoing” violations under the CAA’s citizen suit provision. The Fifth Circuit extended that holding from cases arising in the Clean Water Act context to reach the result here.

The Fifth Circuit’s decision also provides further guidance on application of the CAA’s civil penalty factors. In good news for the regulated community, this decision affirms the propriety of analyzing the “compliance history and good faith efforts to comply” factor with an eye towards the emitting facility at issue (i.e. size, complexity, etc.). On the other hand, it also illustrates that courts may consider evidence of delayed implementation of projects that reduce emissions under the “economic benefit” penalty factor. Finally, district courts will need to exercise caution when declaring that violations can offset each other to render a civil penalty factor “neutral.”

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¹ 42 U.S.C. §7604(a)(1).

² 42 U.S.C. §7413(e)(2).

³ This was due to Plaintiff’s summary exhibits setting forth Count I violations under a heading for MAERT violations.

⁴ Env’t Tex Citizen Lobby, Inc. v. ExxonMobil Corp., 66 F. Supp. 3d 875, 894 (S.D. Tex. 2014); see also Glazer v. American Ecology Envtl. Servs. Corp., 894 F. Supp. 1029, 107-38 (E.D. Tex. 1995).

⁵ 42 U.S.C.§7604(a).

⁶ (1) The size of the business; (2) the economic impact of the penalty on the business; (3) the violator’s full compliance history and good faith efforts to comply; (4) the duration of the violation as established by any credible evidence; (5) payment by the violator of penalties previously assessed for the same violation; (6) the economic benefit of noncompliance; and (7) the seriousness of the violation. 42 U.S.C. §7413(e)(1).

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