In an opinion filed on Tuesday, August 20, 2013, the U.S. Court of Appeals for the 3rd Circuit held that the federal Clean Air Act (CAA) does not preempt common law tort claims grounded in state law and brought against a source of pollution located in the same state. Reversing and remanding the decision of the court below, the 3rd Circuit’s decision has major implications for both standard toxic tort as well as climate-related litigation against coal and other fossil fuel-fired power plants and industrial facilities. The case is Kristie Bell v. Cheswick Generating Station, GenOn Power Midwest L.P., No. 12-4216 (3d Cir. Aug. 20, 2013).

Background

As previously discussed in our November 6, 2012 Alert,¹ plaintiffs filed a class action suit against GenOn’s Cheswick power plant, alleging that GenOn’s operation of the coal-fired facility caused foul odors and the settlement of coal combustion residuals on their private property. The complaint was grounded in the Pennsylvania common law tort theories of nuisance, negligence and trespass. Plaintiffs sought compensatory and punitive damages, as well as injunctive relief. Originally filed in the Allegheny County Court of Common Pleas, the complaint was shortly removed by GenOn to the U.S. District Court for the Western District of Pennsylvania.

On GenOn’s motion to dismiss, the district court rejected plaintiffs’ contention that the case was solely about property damage, instead viewing the complaint as a challenge to emissions standards established by the U.S. Environmental Protection Agency, the Pennsylvania Department of Environmental Protection and the Allegheny County Health Department. Holding that judicial interference with comprehensive standards established under the extensive framework of the CAA was neither warranted nor permitted, the district court ruled that Pennsylvania common law was preempted by the CAA and dismissed the complaint in its entirety.

The 3rd Circuit’s Decision

Describing the issue as a matter of first impression in the 3rd Circuit, the appellate court framed the question as “whether the Clean Air Act preempts state law tort claims brought by private property owners against a source of pollution located within the state.” Key to the court’s analysis is its interpretation of the CAA and its structure of cooperative federalism. The court opined that the CAA reserves air pollution prevention and control as “the primary responsibility of individual states and local governments,” whereby the federal government establishes baseline standards that the states “individually implement and enforce.” Importantly, citing Section 116 of the CAA (which the court designated the “states’ rights savings clause”), the 3rd Circuit observed, “states are expressly allowed to employ standards more stringent than those specified by the federal requirements.”

Acknowledging that the Cheswick power plant is extensively regulated and comprehensively overseen by both state and federal authorities under the CAA, and that the permit issued to the facility specifically addresses emissions of odor and combustion residuals, the 3rd Circuit did not determine that the permit controlled on these issues. Rather, the court pointed to a savings clause within the permit itself that preserved all rights and remedies under equity, common law and statutory law.

The 3rd Circuit’s analysis relies principally on the U.S. Supreme Court’s decision in International Paper Co. v. Ouelette, 479 U.S. 481 (1987). In short, that case involved a suit brought by Vermont citizens and rooted in Vermont state nuisance law against a facility located in New York. At issue was whether the Clean Water Act and its comprehensive regulatory regime preempted the action. While the Supreme Court held that certain common law actions based upon the affected state’s (i.e., Vermont) law would be barred by the Clean Water Act, it held that no such preemptive effect applied to the laws of the source state (i.e., New York). The Supreme Court reasoned that to apply the law of the affected state to an out-of-state source would undermine Congressional intent. By contrast, the savings clause contained in the Clean Water Act expressly allowed a state to more stringently control facilities within its own borders. As a result, the Vermont plaintiffs would not have been barred from bringing their action against the New York facility under the laws of New York.

Citing additional Supreme Court precedent, the 3rd Circuit determined that there is no meaningful difference between the states’ rights savings clauses of the Clean Water Act and the Clean Air Act. Thus, the 3rd Circuit applied the Supreme Court’s decision in Ouelette, and, based on its plain language reading of the Clean Air Act, concluded that “source state common law actions” are not preempted by the CAA. Accordingly, the court reversed the decision of the district court, reviving plaintiffs’ complaint, and held that a suit brought by Pennsylvania residents, rooted in Pennsylvania law and against a source located in Pennsylvania is not preempted by the CAA.

As a matter of policy, the court expressed little concern over whether its ruling would “open the proverbial floodgates” to nuisance claims against facilities that may otherwise be in compliance with established state and federal emissions standards, resulting in a patchwork of inconsistent requirements. Emphasizing a state’s ability under the CAA to apply more stringent standards to sources located within their jurisdiction, and despite a certain amount of tension in the permitting system, the 3rd Circuit explained that state tort law is an acceptable way to impose higher standards on an in-state facility.

Finally, in a single paragraph, the 3rd Circuit disposed of GenOn’s argument regarding the political question doctrine, which generally excludes from judicial review policy issues “constitutionally committed” to the legislative or executive branches of government. The 3rd Circuit stated simply that no court had ever abstained from considering an issue of individual property rights impacted by pollution on political grounds, and that the Supreme Court’s Ouelette decision itself further confirmed that the doctrine should not be applied.

The 3rd Circuit’s conclusions in this case appear to flow in large part from its own framing of the case as one seeking to vindicate individual property rights. As such, allowing emissions standards for an individual source to be ratcheted down through a state tort action in the context of demonstrable damage to private property appears more legally defensible – particularly where such damage would in fact be in violation of a permit condition. By contrast, the district court viewed this case as more generally “attacking emissions standards.” This distinction is important. Framed as a challenge to standards established through federal and state rulemaking and permitting processes, a subsequent common law tort action could be viewed as an end-run around the need to exhaust administrative remedies or in violation of the political question doctrine.

Going Forward

While the decision of the 3rd Circuit may be appealed, owners and operators of facilities within the 3rd Circuit, particularly electric generators and oil and gas companies, nevertheless should be alert for tort actions brought under local law. A similar action already has been brought against the Hatfield’s Ferry power plant in Greene County, Pa., owned by FirstEnergy. As the law stands, it appears that source state common law tort actions will not be barred as a matter of CAA (or Clean Water Act) preemption or under the political question doctrine in the 3rd Circuit. Although facilities may be operating in full compliance with their permits, facilities cannot be assured that this will insulate them against environmental challenge. This is particularly true where, as with Cheswick, their permit contains a savings clause preserving state common law rights, despite the “permit shield” provision under CAA Section 504(f). Rather, this decision raises the possibility that courts within the circuit will have the ability to review facility operations on a case-by-case basis and determine whether special standards or other requirements beyond those contained in a permit may be necessary to prevent an alleged nuisance, trespass or other tort. While such cases ultimately may be defended on grounds other than preemption, the 3rd Circuit’s decision will increase both the risk and expense to companies associated with litigation, compliance and regulatory uncertainty. At a minimum, facilities should take care in negotiating their Title V permits to include language that acknowledges the CAA permit shield provision to protect the source from enforcement of an applicable requirement where the source is in compliance with permitted limits.