NSR “Operator” Liability

In United States v. EES Coke Battery, LLC, 2024 WL 2271825 (E.D. Mich. May 20, 2024) (Case No. 22-11191), the EPA and DOJ seek to establish liability of EES Coke’s corporate parents without piercing the “corporate veil” arguing that the parents were “operating” EES Coke because their employees or contractors were involved in a permitting decision that the United States alleged violated PSD requirements.  EES Coke opposed a motion to amend the complaint to incorporate this theory and the district court undertook a useful evaluation of the rules of “operator” liability under the NSR program.

ANALYSIS

EES Coke operates a coke oven battery on Zug Island in River Rouge, Michigan. Until 2014, EES Coke had a permit that limited emissions. In 2014, EES Coke asked Michigan to remove the emissions limit, which Michigan did.  The United States alleged in a 2020 Notice of Violation (NOV) that removal of the limit resulted in emissions of sulfur dioxide (SO2) increasing by more than 40 tons/year over several years and that EES Coke had failed to obtain an NSR permit for this increase.  In subsequent discovery, the United States learned that certain employees or individuals involved in the EES Coke decisions were also employees or contractors of DTE Energy Co., DTE Energy Services, Inc., or DTE Energy Resources, Inc. d/b/a DTE Vantage. The United States then issued a 2024 NOV and sought to amend its complaint alleging that the employing entities were “heavily involved in the environmental decision making that led to the violations alleged in the original complaint.”  The four specific allegations were as follows:

1. individuals in EES Coke's technology group, which was charged with assessing potential pollution controls at the Facility, were employed by DTE Energy Services, not EES Coke;

2. individuals in the environmental group responsible for obtaining and ensuring compliance with air permits at the Facility were employed by DTE Energy Resources, not EES Coke;

3. all of the business unit managers for EES Coke, which handles the day-to-day operations of the Facility, are employed by DTE Energy Services, not EES Coke; and

4. the hierarchy for the decision-making process at the Facility starts with the Steel Group, a subgroup within DTE Energy Services, then goes to DTE Energy Resources, and then, for significant decisions, up to DTE Energy.

EES Coke submitted a revised affidavit from one employee specifically denying that he had worked on the permit on behalf of DTE Energy Co.

The district court began by noting that leave to amend a complaint should be “freely” granted when justice so requires.  It found that addition of the extra corporate defendants was not prejudicial because the United States explained the reason for the delay and the amendment was not so late that prejudice from the delay was evident. 

The court then took up EES Coke’s argument that amendment was “futile” because the government could not establish liability against the DTE entities generally and was barred by the statute of limitations.  The court noted that “the CAA imposes strict liability upon owners and operators who violate the Act” and that “even a non-owner can still be liable as an ‘operator’ if he or she has ‘significant or substantial or real control and supervision of a project.’”  The district court then held that the U.S. Supreme Court’s decision in United States v. Bestfoods sets forth the contours of owner/operator liability.  Bestfoods holds that “owner” derivative liability depends upon “piercing the corporate veil” under relevant state corporate law but that environmental statutes may also create “operator” liability. In order for operator liability to exist, a parent company must “manage, direct, or conduct operations specifically related to the pollution, that is, operations having to do with the leakage or disposal of hazardous waste, or decisions about compliance with environmental regulations.”  Bestfoods, 524 U.S. 51, 64-67 (1998).  The district court then noted that the Clean Air Act is interpreted in the same way, citing United States v. Anthony Dell’Aquilla, Enters. & Subsids., 150 F.3d 329, 332 (3d Cir. 1998), and further noting that the Sixth Circuit uses an “actual control test to help resolve whether an entity is an operator.”  This Sixth Circuit test requires a party to “perform an affirmative act” to be an operator but provides that any later failure to act does not absolve it from operator liability so long as the plaintiff shows that the entity’s “activities satisfy the ordinary meaning of the term ‘operation.’”

The district court then found that the allegations in the complaint met this test, noting that a DTE Energy Co. “employee” had stated that he had “overseen several permitting efforts at the facility” including supervising a consultant. The district court then noted that the consultant’s proposal stated that the consultant “would work with DTE Energy Resources ‘under the existing contract and project with DTE Energy’” and that this was sufficient to establish, for purposes of pleading, that further discovery could lead to the conclusion that DTE Energy “managed, directed, or conducted the permit application” that led to the 2014 emissions increase.  The district court said that in reviewing a request for amendment all that is required is “a reasonable expectation that discovery will reveal evidence of illegal” conduct.

Using the same approach, the court held that the government’s allegations that “other employees involved in the environmental permitting relevant to this case were employees of DTE Energy Vantage,” that “employees involved in the ‘assessment of pollution controls’ were employees of DTE Energy Services and DTE Vantage,” that “decision-making and approvals for business and environmental compliance related to the Coke Oven Batteries are made by management or executives” of these entities, and that EES Coke and DTE Vantage shared two officers was sufficient to allow the amendment, although the district court noted that the factual issue of whether any of this amounted to actual control “raises an issue of fact well suited for summary judgment…” The court also rejected the applicability of the “borrowed servant” doctrine at the pleadings stage, noting it might be appropriate for summary judgment.

On the statute of limitations issue, EES Coke had urged many out-of-circuit cases finding that PSD violations are complete at the time the permit is not obtained and are not “continuing.” The district court held that it was bound by the Sixth Circuit decision in National Parks Conservation Ass’n v. TVA, 480 F.3d 410, 418-19), that “best available control technology” violations occur each and every day, continuously resetting the statute of limitations and that the language of the Michigan provisions was sufficiently similar to the Tennessee language to compel the same result. 

Based on this analysis, the district court allowed the government to amend the complaint to add DTE Energy Co. and its subsidiaries as liable for the EES Coke violation as “operators” of EES Coke.

COMMENTARY

EES Coke is a good reminder of the reach and breadth of concepts such as “operator” that the courts see as crossing statutes and establishing a general framework of environmental liability for alleged wrongdoing. In this case, a poorly worded response to a discovery request and a reference in a proposal to working under a contract with the parent was found sufficient to establish, at least for pleading purposes, that the corporate parent was liable as an “operator” of the subsidiary. Whether the government ultimately succeeds in this allegation or not, the case is a good reminder that everyone engaged in environmental decisionmaking needs (1) to be cognizant of their corporate roles; (2) to keep their various responsibilities separate; and (3) to ensure that they are acting for the appropriate entity to avoid creating “operator” liability where not intended.