Category: Due Diligence / Compliance

The Supreme Court Ends Chevron Deference—What Does This Mean for Environmental Regulation and Enforcement?

Margaret Anne Hill, Frank L. Tamulonis III, and Holli B. Packer ●

The Supreme Court of the United States’ recent ruling in Loper Bright Enterprises v. Raimondo[1]dealt a significant blow to the power of federal agencies by ending the 40-year-old precedent commonly known as “Chevron deference.” Loper has now removed the judicial mandate that courts apply “Chevron deference” and defer to agencies on the interpretation of ambiguous language in laws pertaining to their authority. While it is unclear what impact this ruling will have in environmental enforcement cases as well as environmental regulations, federal judges will now have the power to decide what a law means for themselves, expanding the federal bench’s role in enforcement actions and policymaking.

The Chevron Deference Doctrine

The “Chevron deference” doctrine refers to the Supreme Court’s ruling in Chevron v. Natural Resources Defense Council,[2] which required judges to defer to federal agencies when interpreting ambiguous parts of statutes that those agencies administer. If Congress did not directly address a debated issue, a court was required to uphold the agency’s interpretation of the statute as long as it was reasonable.

The Chevron doctrine involves a two-step test.[3] In the first step, courts determine if Congress has spoken to the “precise question at issue.”[4] If the statute is ambiguous, courts move to step two.[5] However, “if the intent of Congress is clear, that is the end of the matter; for the court, as well as the agency, must give effect to the unambiguously expressed intent of Congress.”[6] In the second step, courts defer to the agency as long as their interpretation of the statute is reasonable.[7] Reasonableness is not a high bar. Typically, if a court finds the statute to be ambiguous, the agency’s interpretation will receive deferential preference. At the time of the holding, the Chevron doctrine marked a jurisprudential shift in the interpretive power of the courts, which have historically determined “what the law is,”[8] to agencies in the executive branch.[9]

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EPA Issues Final PFAS National Primary Drinking Water Regulation

Margaret Anne Hill and Camila Thorpe ●

On April 10, 2024, the Environmental Protection Agency (“EPA”) finalized the National Primary Drinking Water Regulation (“NPDWR”) for six per- and polyfluoroalkyl substances (“PFAS”). PFAS, also known as “forever chemicals,” are widely used in industry and consumer products. According to the EPA, these chemicals have been linked to serious adverse health effects, including cancer and other serious illnesses. The final rule establishes national standards for specific PFAS, both individually and as mixtures, often found in drinking water. [i]

The Final Rule

The final rule sets individual enforceable Maximum Contaminant Level (“MCL”) limits for five PFAS.[ii] MCLs are the highest levels of a contaminant that are allowed in drinking water. For mixtures containing two or more of four PFAS,[iii] the rule sets a Hazard Index Level. Finally, the rule also sets a Maximum Contaminant Level Goal (“MCLG”) for each individual PFAS and mixtures, which is a non-enforceable health goal set at a level below which there is no known or expected risk to health.

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EPA’s Focus on Ethylene Oxide


Margaret Anne Hill, Holli B. Packer, and Robert P. Scott ●


The Environmental Protection Agency issued a final rule on March 14 that will require significantly reduced emissions from commercial facilities that sterilize medical devices and other equipment using ethylene oxide gas (“EtO Rule”). The EtO Rule amends the National Emission Standards for Hazardous Air Pollutants (“NESHAP”), 40 C.F.R. Part 63, Subpart O, and is projected to reduce EtO emissions by over 90 percent nationwide for commercial sterilizers. The impetus for the Rule is a complaint filed by Earthjustice on December 14, 2022, in which the non-governmental organization (“NGO”) requested both injunctive and declaratory relief based upon its claim that the Environmental Protection Agency (“EPA”) had violated Section 112(d) of the Clean Air Act for the past 16 years by failing to review and revise air toxics standards for commercial sterilizers.

Emissions Controls and Reporting

The EtO Rule imposes strengthened standards for EtO emissions from the proposed rule following the receipt of public comments. It requires continuous emissions monitoring and quarterly reporting for most commercial sterilizers to ensure that emissions are controlled. Notably, the EtO Rule establishes revised standards for existing sources such as sterilization chamber vents and aeration room vents, as well as for previously unregulated emissions that escape via building leaks and chamber exhaust vents.

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New SEC Climate-Related Disclosure Rule

Margaret Anne Hill and Holli B. Packer ●

On March 6, 2024, the Securities and Exchange Commission (“SEC”) adopted amendments to the disclosure rules under the Securities Act of 1933 and the Securities Exchange Act of 1934. Although the final rule is a scaled-back version of the proposal published on March 21, 2022, the new rule will require many publicly traded companies to disclose both their direct and indirect emissions, also known as “Scope 1” and “Scope 2” emissions, provided the emissions are material. Companies must also disclose to investors their climate-related risks, including information about financial harm caused by severe weather events and other natural events. The new rule will be phased in beginning with the filing of annual reports for the year ending December 31, 2025.

Of significance to the business community is the SEC’s decision to exclude the requirement to report Scope 3 emissions which would have required businesses to disclose all indirect greenhouse gas (“GHG”) emissions not otherwise included in a registrant’s Scope 2 emissions that occur in the upstream and downstream activities of the registrant’s value chain. In deciding to eliminate the requirement to report Scope 3 emissions, the SEC observed that “Scope 3 emissions typically result from the activities of third parties in a registrant’s value chain and, thus, collecting the appropriate data and calculating these emissions would potentially be more difficult than for Scopes 1 and 2 emissions.”

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EPA Issues Supplemental Notice of Proposed Ruling to Implement the Vessel Incidental Discharge Act, Finally!

Jeanne M. Grasso and Dana S. Merkel

The U.S. Environmental Protection Agency (“EPA”) published a Supplemental Notice of Proposed Rulemaking (“SNPR”) on October 18, 2023, modifying its initial proposed rule from three years ago on performance standards for vessel incidental discharges. 2023-22879.pdf (govinfo.gov) The SNPR addressed only three limited areas—ballast water, hulls and associated niche areas, and graywater—and did not make any sweeping changes to the prior proposal of October 26, 2020. 2020-22385.pdf (govinfo.gov)

Background

In December 2018, the Vessel Incidental Discharge Act (“VIDA”) was signed into law, which amended the Clean Water Act (“CWA”) and was intended to replace the EPA’s 2013 Vessel General Permit (“VGP”) to bring uniformity, consistency, and certainty to the regulation of incidental discharges from U.S. and foreign-flag vessels. VIDA required EPA to finalize uniform performance standards for each type of incidental discharge by December 2020, a deadline that is nearly three years past, and requires the United States Coast Guard (“USCG”) to implement EPA’s final standards within two years thereafter.

In October 2020, EPA published a proposed rule titled Vessel Incidental Discharge National Standards of Performance to implement VIDA, but the proposal languished with the change from the Trump Administration to the Biden Administration. EPA’s delay in finalizing its performance standards prompted the Center for Biological Diversity and Friends of the Earth to file a lawsuit in February 2023 to force EPA to finalize its performance standards. Center for Biological Diversity, et al., v. Regan, et al., No. 3:23-cv-535 (N.D. Cal. 2023). The premise of the environmental groups’ complaint was that EPA’s inaction harmed aquatic ecosystems, with the principal allegations focused on ballast water discharges. The parties thereafter negotiated a Consent Decree that requires EPA to finalize its performance standards by September 23, 2024. To keep EPA accountable, EPA is also required to provide updates to the court every three months on the status of the rulemaking.

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CFTC Issues Guidance Regarding Factors to Be Used in Evaluating Corporate Compliance Programs

Mark R. Haskell, George D. Billinson, and Lamiya N. Rahman







On September 10, 2020, the Commodity Futures Trading Commission’s (“CFTC” or “the Commission”) Division of Enforcement (“the Division”) issued guidance for CFTC staff on the factors to be considered when evaluating compliance programs in connection with enforcement matters. The guidance will be inserted in the CFTC Enforcement Manual. Although not binding on the Commission or any other Division of the CFTC, the Compliance Guidance is binding on Enforcement staff.

In recent years, the Division has taken several steps to increase transparency regarding the performance of its enforcement functions. First, the Division published its Enforcement Manual, which is updated periodically and publicly available on the CFTC’s website. On May 20, 2020, the Division issued guidance to staff regarding factors to be considered in recommending a civil monetary penalty in an enforcement action. Those factors include the existence and effectiveness of an existing compliance program, as well as efforts to improve that compliance program following detection of a violation. The recently issued Compliance Guidance provides factors to be used in evaluating such compliance programs.

The Compliance Guidance focuses on whether the compliance program was reasonably designed and implemented to achieve prevention, detection, and remediation of the misconduct at issue. The Compliance Guidance acknowledges that this assessment depends upon the specific facts and circumstances involved and further states that “[a]t all points, the Division will conduct a risk-based analysis, taking into consideration a variety of factors such as the specific entity involved, the entity’s role in the market, and the potential market or customer impact of the underlying misconduct.”

The Compliance Guidance provides a number of factors for staff to consider in determining whether a compliance program was reasonably designed and implemented to achieve the three goals identified above.

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The Supremes Weigh in on Superfund and the Clean Water Act

Margaret Anne Hill, Frank L. Tamulonis III, and Stephen C. Zumbrun

Notwithstanding that the Comprehensive Environmental Response, Compensation, and Liability Act (more commonly known as “Superfund”) has been around for 40 years, and the fact that numerous cases have made their way to the U.S. Supreme Court analyzing liability under the Act, debates continue as to who can be a Superfund “potentially responsible party” or a “PRP.” For those who still do not get the scope and reach of Superfund liability, the Supreme Court has, once again, provided a clear response with respect to liability under the Act in an April 20, 2020, decision, Atlantic Richfield Co. v. Christian et al. In that case, the Court reaffirmed its position set forth in a 2007 case, United States v. Atlantic Research Corp., 551 U. S. 128, 136 (2007), that even parties whose property has been contaminated by others, and who are innocent with respect to the contamination, fall within the broad definition of liable parties under Section 107(a) of Superfund (which uses the term “covered persons”), subject to the third-party defense set forth in Section 107 (b).

Atlantic Richfield involved a group of 98 property owners who filed claims against Atlantic Richfield in Montana state court in connection with the Anaconda Copper Smelter Superfund Site in Butte, Montana, a 300-square-mile site contaminated with arsenic and lead. The property owners’ claims included trespass, nuisance, and strict liability claims under state common law. The landowners sought restoration damages, among other forms of relief, which was the issue before the Court since Atlantic Richfield conceded that Superfund preserves claims for other types of compensatory damages under state law, including loss of use and enjoyment of property, diminution of value, incidental and consequential damages, and annoyance and discomfort. The property owners sought to implement a remedial restoration plan that exceeded the U.S. Environmental Protection Agency’s (“EPA”) selected remedial actions. The question regarding their PRP status was before the Court in the context of determining if they were prohibited from taking further remedial action without EPA’s approval under Section 122(e)(6). Continue reading “The Supremes Weigh in on Superfund and the Clean Water Act”

EPA Reverses Course with the Mercury and Air Toxics Regulations for Power Plants

Margaret Anne Hill, Frank L. Tamulonis III, and Stephen C. Zumbrun

The saga for regulating mercury and air toxics from coal- and oil-fired power plants continues with a final rule promulgated by the U.S. Environmental Protection Agency (“EPA”) on April 16, 2020. EPA initially determined that it was “appropriate and necessary” under Section 112 of the Clean Air Act to regulate hazardous air pollutants (“HAPs”)—including mercury—for these types of power plants, commonly referred to as electric utility steam generating units (“EGUs”).[1] In a change of policy, EPA has now decided that the “appropriate and necessary” determination to regulate HAPs for these power plants—after two decades of additional EPA rules, and corresponding litigation—is no longer correct.[2]

A significant part of the backstory here is related to the U.S. Supreme Court’s decision in 2015 in Michigan v. EPA.[3] Briefly, the Court held that the EPA needed to consider costs in evaluating whether it was “appropriate and necessary” to regulate HAP emissions from coal- and oil-fired EGUs, especially the costs associated with compliance. Following the Supreme Court’s decision, EPA, under the Obama Administration, conducted a study in 2016 to evaluate these costs and concluded that it was still “appropriate and necessary” to regulate HAPs emitted from these sources.[4] The Trump Administration has now reversed course in issuing the April 16 final rule, effectively concluding that the EPA’s decision in 2016 was wrong. Continue reading “EPA Reverses Course with the Mercury and Air Toxics Regulations for Power Plants”

FERC Issues Penalty Assessment in Vitol CAISO Market Manipulation Proceeding

Mark R. Haskell, George D. Billinson, and Lamiya N. Rahman

The Federal Energy Regulatory Commission issued an Order Assessing Civil Penalties, imposing approximately $1.5 million in civil penalties on Vitol Inc. and one million dollars in penalties on a Vitol trader. In a departure from prior cases, the Commission assessed penalties well below Enforcement Staff’s recommended six-million-dollar penalty for the company, in light of the individual trader’s significant involvement in the alleged scheme. The next step for Respondents wishing to challenge the Order will be de novo review in federal district court.

On October 25, 2019, the Federal Energy Regulatory Commission (“FERC” or “Commission”) issued an Order Assessing Civil Penalties (“Order”), imposing civil penalties of $1,515,738 against Vitol Inc. (“Vitol”) and one million dollars against Federico Corteggiano, a Vitol trader, in connection with an alleged market manipulation scheme in the California Independent System Operator Corporation’s (“CAISO”) markets.[i] Additionally, the Commission ordered Vitol to disgorge unjust profits, plus interest, of $1,227,143.

As we have previously discussed, the Commission began this proceeding by issuing an Order to Show Cause and Notice of Proposed Penalty to Respondents on July 10, 2019. In that order, the Commission directed Vitol and Corteggiano to show cause why they should not be assessed civil penalties of six million dollars and $800,000, respectively, and why Vitol should not be required to disgorge unjust profits of $1,227,143, plus interest. Respondents elected to have the Commission assess an immediate penalty if it finds a violation and then proceed with de novo review before a federal district court.

In the instant Order, the Commission found that Vitol and Corteggiano (collectively, “Respondents”) violated the anti-manipulation prohibitions in the Federal Power Act (“FPA”) and FERC’s Anti-Manipulation Rule[ii] through a cross-market scheme in which Respondents sold power at a loss in the CAISO wholesale electric market to avoid greater losses in Vitol’s positions in a separate financial product—congestion revenue rights (“CRRs”).[iii]

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[i] Vitol Inc., Order Assessing Civil Penalties, 169 FERC ¶ 61,070 (2019).

[ii] FPA § 222 (2012); 18 C.F.R. § 1c.2 (2019).

[iii] Specifically, the Commission found Respondents intentionally engaged in fraudulent physical energy imports during the period October 28-November 1, 2013, at the Cascade intertie to relieve congestion at Cragview, which in turn lowered the Cragview locational marginal price (“LMP”) and economically benefitted Vitol’s CRRs sourced at that location. Order at P 34.

FERC Issues Show Cause Order Proposing $6.8M in Civil Penalties to Vitol Inc. and Individual Trader and $1.2M Disgorgement for Alleged CAISO Market Manipulation

Mark R. Haskell, George D. Billinson, and Lamiya N. Rahman

Recently, FERC issued an Order to Show Cause why Vitol Inc. and its co-director of financial transmission rights trading should not be found to have engaged in market manipulation by selling physical power in CAISO at a loss to eliminate expected losses on Vitol’s Congestion Revenue Rights. Within 30 days of the date of the Order, Respondents must show cause why they should not be found to have committed market manipulation, pay civil penalties, and disgorgement, as well as make an election under FPA § 31(d)(1) whether to proceed before an Administrative Law Judge or opt to have FERC assess a penalty and then proceed with de novo review by a federal district court.

On July 10, 2019, the Federal Energy Regulatory Commission (“FERC” or “Commission”) issued an Order to Show Cause and Notice of Proposed Penalty[1] to Vitol Inc. (“Vitol”) and Vitol’s co-head of financial transmission rights (“FTR”) trading, Federico Corteggiano (“Corteggiano”), (together, “Respondents”), directing the Respondents to show cause why they should not be found to have violated the anti-manipulation provisions of the Federal Power Act (“FPA”)[2] and the Commission’s regulations.[3]

The Order arises from allegations by FERC’s Office of Enforcement (“Enforcement”) that Respondents engaged in a “cross-product market manipulation scheme” by selling physical power at a loss in the California Independent System Operator (“CAISO”) day-ahead market to avoid even greater losses on their positions in a separate financial product—congestion revenue rights (“CRRs”). Enforcement’s factual allegations and legal analysis, resulting from an investigation into Respondents’ trading, are detailed in the Enforcement Staff Report and Recommendation included with the Order.[4] The investigation was prompted by a report from a CAISO market participant regarding Vitol’s activity.

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