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Cost Consideration: Supreme Court Hears Arguments in Michigan v. EPA

Today the Supreme Court hears arguments in Michigan v. EPA, to resolve whether the Environmental Protection Agency (EPA) must consider costs when deciding whether it is appropriate to regulate hazardous air pollutants emitted by electric utilities.

It’s surprising that an agency would not consider costs when deciding how to regulate. We could make cars safer by requiring that they be made like tanks. We could reduce hospital infections by requiring hazmat-style protective equipment.  But alternatives like these are usually not appropriate. It is more reasonable to approach every regulation by weighing its unique costs and benefits. (continue reading…)

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MCLA Amicus Argues a Balanced Consideration of Costs and Benefits for EPA

If U.S. manufacturers had no costs from complying with federal, state and local regulations, they would have a significant advantage over competitors that have such costs. Wouldn’t that be nice? Obviously, compliance costs are an important factor in many business decisions, and the greater the costs, the harder it is for manufacturers to produce and to compete. (continue reading…)

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BP Deepwater Horizon Settlement Raises Fundamental Constitutional Issue

This week, Halliburton Co. agreed to a $1.1 billion settlement of claims by the commercial fishing industry and others affected by the 2010 Deepwater Horizon oil spill in the Gulf of Mexico.  Last year, BP Exploration and Production Inc. and BP America Production Co. (“BP”) sought a court ruling that its own agreement to pay claims to injured parties should be limited to those who were actually affected, directly or indirectly, by the spill.

This is an obvious argument. It is a bedrock principle of Article III of the U.S. Constitution that courts are to resolve actual cases or controversies, which means that plaintiffs must have some injury and defendants must be the ones responsible for it.  BP has already acknowledged responsibility for its share of the damages from the spill, and in order for courts to have jurisdiction, the plaintiffs must show that they were injured by the spill.

Unfortunately, the Fifth Circuit ruled in May, with 3 judges dissenting, not to review a ruling that allowed claims without having to submit evidence that the claims arose as a result of the spill.  See our blog post here.  This failure has serious implications because it allows courts to certify classes of claimants for settlement purposes that could never have been certified to sue in court. Manufacturers of all kinds could face huge liabilities to parties never affected by their products.

BP has appealed to the Supreme Court of the United States. The NAM’s Manufacturers’ Center for Legal Action filed an amicus brief today urging the Court to take the case and reverse the lower court.  We warned that the lower court’s ruling will allow improper settlements and distributions, discouraging future settlements, increasing litigation costs, and flooding the courts with complex, time-consuming and expensive cases.  It also makes the courts complicit in an unsettling expansion of their power.

Quentin Riegel is Vice President and General Counsel for the National Association of Manufacturers.

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Nuisance in the Courts

Like invading hordes, plaintiffs have been seeking new ways to seize manufacturing assets—only they do it in court. The Manufacturers’ Center for Legal Action is seeing a rash of lawsuits alleging damages from activities that various government agencies have already approved under statutes enacted with bipartisan support and regulations that have balanced the interests of individuals, manufacturers and the public at large. These claims seek money from normal business activities that are fully permitted and regulated.

The latest threat is from landowners who sue manufacturing facilities that operate under emissions permits issued by a state or the Environmental Protection Agency (EPA), for damages from particulate matter or other pollution.  While the Clean Air Act allows suits for permit violations, these new suits do not allege any violations of existing permits. For example, in Iowa, landowners sued a corn milling plant that had valid state and EPA permits. When the case went to the Iowa Supreme Court, the National Association of Manufacturers (NAM) filed a brief supporting the plant, arguing that the suit is a political question unsuitable for the courts, and in any case is preempted by federal regulation.  However, that court decided that, even though a company is complying with federal and state environmental regulations, a landowner may still sue over the effects of the pollution, such as from dust, ash or unpleasant odors.

A similar suit in Pennsylvania against a power plant that was in compliance with federal and state regulations was initially dismissed by the trial court, but that decision was later reversed by an appeals court. The Supreme Court refused to hear that appeal, although we had urged them to.

Another suit alleging ground contamination near a North Carolina manufacturing plant site sought to impose damages above and beyond the cleanup obligations already required under the Superfund law. The NAM weighed in with an amicus brief in this case, and the Supreme Court decided not to authorize this expanded liability. While this win is reassuring, the case is another example of how manufacturers are being bombarded with lawsuits even though they are already complying with state and federal protocol.

Finally, we urged the Supreme Court to review a decision holding a company liable for MTBE (a fuel additive for gasoline engines) pollution-related injuries that have not actually happened in the groundwater of Queens, N.Y. The alleged contamination arose from using the safest feasible means of satisfying the federal oxygenation requirement for gasoline; yet, a lower court imposed retroactive liability on a company doing just that. Unfortunately, the Supreme Court declined to hear the case.

It’s enough to make you put up the barricades and call in the lawyers.

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Manufacturers Continue Fight Against Public Nuisance Suits

The Supreme Court meets today in closed conference to decide whether to hear a case that could set the stage for thousands of environmental suits against manufacturers who are in full compliance with their permits from the Environmental Protection Agency (EPA) and its state counterparts. Unless reversed, the appeals court decision in GenOn Power Midwest, L.P. v. Bell will open the courts for property owners and residents near manufacturing plants around the country to sue those companies for emitting anything from their plants.

An editorial in yesterday’s Wall Street Journal highlights the problem: “Failing to reverse the decision could expose U.S. industry to billion [sic] of dollars of liability and lead to a state-by-state chopped salad of pollution controls as judges make what are quintessentially political decisions.”

The Manufacturers’ Center for Legal Action is seeing this latest attempt to subject companies to so-called “public nuisance” litigation for activities already subject to permitting, equipment improvement requirements, monitoring, and public and private enforcement liability under the Clean Air Act. That law was supposed to provide a uniform system for environmental compliance and enforcement, but this lawsuit and others like it threaten to turn trial judges into EPA regulators, setting standards, monitoring compliance, and issuing penalties.  A similar case in Iowa is now awaiting a decision from that state’s Supreme Court.

We are harnessing the power of a broad range of manufacturing associations to help us tell our story in the courts.  Many groups, including the American Chemistry Council, the American Iron and Steel Institute, the Corn Refiners Association, and the Treated Wood Council, have joined in our effort to shine a light on this litigation problem.

In March, we asked the U.S. Supreme Court to review the GenOn Power case. We should find out on Monday whether the Court will hear the issue, and after full review, whether to end this nonsense once and for all.

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Supreme Court Hears Securities Class Action Case

Playing the stock market is a better gamble if you can sue when you lose. That’s what some sophisticated investors have been doing with some success as a result of the 1988 Supreme Court decision in Basic v. Levinson.  Although there’s no statute that says you can sue when your stock bet loses money, you can always look around after the fact and try to find evidence that the company didn’t publicize something that might have had an effect on the price.  If you can show fraud by the company, you can sue under an implied right-of-action under the securities laws.

Showing that you were defrauded requires that you prove that you relied on some statement that the company made when deciding whether to buy or sell your stock.  Lucky for you, that requirement was eliminated when the Supreme Court ruled that a court may presume that you relied on information generally available to stock market participants. Under the “efficient capital markets” theory accepted by the Court, it is assumed that stock prices accurately reflect their true price in open and well developed markets with many trades.

If you relied on the efficient market in buying stock, a court will assume the price accurately reflects material information about the stock, and if there was price distortion from erroneous or misleading information, you can sue for your losses.

The Court assumed that investors invest on the assumption that the trading price of the stock accurately reflects the true value of the stock. The problem with that is that many sophisticated investors buy stock because they think it will outperform the valuation that the market assigns. Many investors buy or sell a security precisely because they believe the market price is wrong – buying when they assess the market has undervalued the stock and selling when the stock is overvalued in their estimation.

That’s the argument the NAM made to the Supreme Court in an amicus brief in Halliburton v. Erica P. John Fund, a case being argued March 5. The Court is reconsidering its presumption-of-reliance ruling, and we hope it will require that reliance be proven. You can’t have it both ways, relying on your own view of the market price, but also relying on the efficient market theory to sue if you guessed wrong.  That’s an unfair and expensive outcome that adds yet another cost to doing business, reducing competitiveness and hampering job creation.

Quentin Riegel is Vice President and Deputy General Counsel for the National Association of Manufacturers. 

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NAM Joins Litigation Against California Cap-and-Trade Revenues

In November, the California Chamber of Commerce filed a lawsuit challenging the legality of the revenues generated by the California Air Resources Board (CARB) for the state’s cap-and-trade greenhouse gas program. Today, we took action to join the suit. The NAM filed papers to intervene in the litigation, focusing not on the legality of the cap-and-trade program itself or the merits of climate change science, but on the extraordinary revenues generated by the auction and reserve sale provisions adopted by CARB.

The effectiveness of the cap-and-trade program comes from the state’s ability to ratchet down greenhouse gas emissions from year to year.  CARB may not go beyond this authority to generate a huge income stream for the state. The first quarterly auction of greenhouse gas allowances in November raised nearly $289 million for California, substantially more than the $62 million required to implement the law. Moreover, that revenue is projected to increase to as much as $3 billion this year and $70 billion over the life of the program.

That income goes far beyond simply paying for the costs of administering the program, and thus exceeds the legal authority of CARB. Alternatively, even if the fees are authorized, they constitute a massive new tax that must be approved (but were not) by a 2/3 majority of the California legislature under the state constitution.

CARB’s income scheme will significantly raise energy costs in the state and further harm its competitiveness, providing limited or no environmental benefit.

A hearing in Superior Court in Sacramento County is scheduled for May 31.

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Court Dismisses Key Climate Change Case

Not only is the Environmental Protection Agency regulating greenhouse gas emissions, but some inventive trial lawyers and environmental groups have been demanding for quite a few years that individual American manufacturers pay damages for the effects of global warming. The suits generally involve claims of damages from rising sea levels, but also involve the effects of Hurricane Katrina.

The latest decision from the federal courts came out today. In what promises to be a decisive outcome in this type of case, the U.S. Court of Appeals for the Ninth Circuit concluded that claims by residents of Kivalina, Alaska, about global warming displacing their town with sea water are themselves displaced by federal law. Relying on the Supreme Court’s decision from last year in the American Electric Power (AEP) case, it said that there can be no lawsuits claiming the greenhouse gas emissions are a public nuisance under federal common law. The NAM supported this outcome in an amicus brief two years ago.

This is a resounding and important victory not only for manufacturers, but for a regulatory system grounded on statutes and regulations rather than on lawsuits and court decrees.  

While the court dismissed the lawsuit, there remain unresolved questions from the AEP case, such as whether state common law, rather than federal common law, might allow this kind of piecemeal litigation in the future.  We hope that the trial bar will recognize the legal and regulatory morass that would be created by further litigation in U.S. courts on this topic. We’re not holding our breath.

Quentin Riegel is vice president, litigation and deputy general counsel, National Association of Manufacturers.

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NAM Joins in Filing Reply Brief on the EPA Ozone Limits Case

Today the National Association of Manufacturers is part of a group that filed a reply brief with the U.S. Court of Appeals for the D.C. Circuit in the Mississippi V. EPA case on the 2008 ozone limits. This brief was filed in response to the briefs filed by the EPA and other environmental groups who have intervened in the case.

This case dates back to the EPA’s reconsidered ozone standard from 2008 which lowered the National Ambient Air Quality Standards to .075 ppm. The brief filed today reiterates the NAM’s position that the EPA did not have sufficient evidence in the record to justify its conclusion that the public health risk from ozone was any different in 2008 than it was in 1997 when the last ozone standard was set.

Also the brief argues that the EPA failed to justify why the 1997 standard was no longer “requisite,” as required by the statute, to protect public health with an adequate margin of safety. The agency also failed to rely on air quality criteria that accurately reflect the latest scientific knowledge, and set secondary standards based on the defective primary standard.

The EPA’s ozone standard threatens the competitiveness of manufacturers and businesses of all sizes throughout the country. In September of last year President Obama decided to delay another reconsideration to lower the standard even further. This would have been detrimental to our economy and would have driven job growth to a halt.

The ozone reconsideration is just another example EPA regulations causing uncertainty for manufacturers. We need certainty from Washington, not more of the same costly regulations that are hurting manufacturers’ ability to create jobs and grow.

Quentin Riegel is vice president of litigation and deputy general counsel, National Association of Manufacturers.

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Federal Appeals Court Rejects EPA’s Overreach Again

In 1994, Texas adopted its “Flexible Permit Program” to comply with Clean Air Act requirements for minor new sources of emissions. It submitted its plan for approval to the EPA, which is required by law to act within 18 months. Years passed without EPA action, and industry sued for an answer.  Finally, sixteen years later, EPA disapproved the Texas plan, throwing into doubt the legality of activities covered, at this point, by about 140 permits.  Every facility with a flexible permit could face fines or other enforcement action regardless of the emissions they produce.

The NAM and a variety of industry parties, as well as the State of Texas, sued.  Today, a federal appeals court agreed to throw out EPA’s disapproval of the Texas plan, finding no statutory basis for its criticisms of the plan. Instead, the court recognized what EPA did not – that the Clean Air Act sets goals and basic requirements, and gives the states broad authority to determine the methods and particular control strategies they will use to achieve them.

Basically, the court told EPA not to micromanage state implementation of the Clean Air Act.  That law makes environmental regulation a shared responsibility, and it is not appropriate for EPA to require states to adopt its own language or procedures as long as the state plans enforce the law’s requirements.

It is quite unusual for courts to overturn EPA decisions, since agencies enjoy a substantial degree of deference under the law, both on factual determinations and on how to legally interpret ambiguous statutes.  But in this case, the court found that EPA made no factual findings or cogent theory that the Texas plan would interfere with proper Clean Air Act enforcement. The agency’s preference for its own way of enforcing the requirements was not enough to justify interfering with a system that Congress established to provide for shared responsibility. (continue reading…)

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