United States: IDEM’s PSD Action Against Foundry Barred by the Marion Superior Court

In a significant victory for citizens facing arbitrary or out-of-date enforcement actions, an Indianapolis Court has invalidated an Indiana Department of Environmental Management ("IDEM") enforcement order against a Kendallville, Indiana, foundry. On November 20, 2003, Judge Thomas Carroll of the Marion County Superior Court granted summary judgment in favor of Dalton Corporation ("Dalton") invalidating an Order issued by IDEM against Dalton. IDEM’s Order had purported to require Dalton to seek pre-construction permits under the Clean Air Act’s ("CAA") Prevention of Significant Deterioration ("PSD") rules for projects implemented in 1984-1985 by a prior owner of the gray iron foundry located in Kendallville. IDEM’s objective was to force Dalton to install emission-control equipment that would meet the CAA’s Best Available Control Technology ("BACT") standards. Such an expenditure — estimated to exceed $8 million — likely would be cost prohibitive for Dalton in these tough times for foundries. The Marion Superior Court’s recent decision helps protect the jobs of hundreds of Dalton’s employees at the Kendallville Foundry.

The 1984-1985 projects were implemented by Amcast Industrial Corporation ("Amcast") which owned the Kendallville Foundry from 1983 to 1988. Amcast implemented the projects to make the Foundry more economically viable and safer to operate. The projects included replacement of portions of the cupola charge handling system, the raising of the cupola shell stack height and replacement of two molding lines by a single new molding line. While the projects improved efficiency and casting quality, the Kendallville Foundry’s actual molding throughput decreased as a result of the projects.

When it received IDEM’s Order, Dalton filed a petition for administrative review to preserve its appeal rights before Indiana’s Office of Environmental Adjudication ("OEA"). Dalton also filed a lawsuit in the Marion Superior Court and almost immediately filed a motion for summary judgment in the court proceeding. IDEM sought to dismiss the court proceeding on the grounds that the dispute must first be adjudicated before the OEA under the "exhaustion of administrative remedies" doctrine. Dalton resisted, citing a recent Indiana Supreme Court decision,Indiana Department of Environmental Management v. Twin Eagle LLC, 798 N.E.2d 839 (Ind. 2003), which held that when the issues raised are purely legal, exhaustion of administrative remedies is not required. Judge Carroll first rejected IDEM’s exhaustion claim and held he could rule on the legality and enforceability of IDEM’s February 17, 2003, Order.

The November 20, 2003, summary judgment order cites six reasons why IDEM’s February 17, 2003, Order cannot be enforced. First, the projects at issue, and the specific issue of whether the projects triggered PSD requirements, had been raised in a prior lawsuit that involved IDEM and Dalton’s predecessor, Amcast. In May 1986 a citizen group gave notice to IDEM of its intent to file a lawsuit against Amcast and IDEM pursuant to the citizen suit provisions of the CAA. The citizen group filed suit against Amcast and IDEM on March 13, 1987. The citizen suit was resolved and dismissed with prejudice in March 1990. The determination whether PSD is applicable to the 1984-1985 projects was at issue, and in the three years the matter was pending, could have been determined in that litigation. Although there was no express finding that no PSD permits were required, under the claim preclusion branch of the doctrine of res judicata, a matter may not be raised if it was or could have been litigated in a prior suit between the same parties or their privies and a judgment was rendered in that suit on the merits. A dismissal with prejudice is a decision on the merits. The Marion Superior Court held that this doctrine barred IDEM’s February 17, 2003, Order as a matter of law.

Second, the Marion Superior Court held that IDEM’s Order was barred by the statute of limitations. Indiana statutes require that IDEM seek enforcement of environmental statutes and regulations within three years of the time that IDEM discovers a violation. IDEM argued that its 2003 Order was a "permitting" rather than an "enforcement" action, and thus was not subject to the three-year limitation, and also that Dalton’s failure to obtain a PSD permit was a "continuing" violation. The Marion Superior Court rejected both of these arguments. It held that the substance of the action rather than IDEM’s label determined the applicable statute of limitations. Citing United States of America v. Southern Indiana Gas & Electric Company, Cause No. IP99-1692-C-M/S (U.S. District Court, S.D. Ind. July 26, 2002), the Court also held that the violation of a PSD construction permit requirement does not continue past the completion date of construction.

The Court’s third reason that the February 17, 2003, Order cannot be enforced is that it was not directed to the entity that actually implemented the projects at issue. Amcast, not Dalton, owned the Foundry and implemented the projects. The Marion Superior Court cited a New York District Court decision that also concluded, based on statutory interpretation, that third-party after-the- fact purchasers are not liable for alleged pre-construction violations under the CAA. State of New York v. Niagara Mohawk, Cause No. 1:02-CV-000024 (W.D.N.Y. March 27, 2003).

Two equitable doctrines, called laches and estoppel, also were held to bar enforcement of IDEM’s February 17, 2003, Order. Laches applies when there is inexcusable delay in asserting a right, an implied waiver from knowing acquiescence in existing conditions and prejudice due to the delay. Estoppel requires a representation or concealment of material facts, made by a party with knowledge of the facts to a party ignorant of the facts, and detrimental reliance by the receiving party. The Marion County Court held that the elements of both doctrines were met based on the undisputed facts. Here a key potential witness was deceased. IDEM’s delay of almost 20 years in seeking enforcement, its representations to Amcast toward and at the end of the citizen suit that no PSD permits were required, and the prejudice to Dalton that had resulted from IDEM’s delay and its changes of position were facts that the Marion County Court cited in making these rulings.

The final reason why IDEM’s February 17, 2003, Order could not be enforced is that the Order sought to force Dalton to perform an impossible task. Dalton submitted expert testimony that detailed the unreliability of existing data and the impossibility of determining or even reliably estimating base emissions or the net emission change needed to determine whether or not the 1984-1985 projects triggered PSD requirements. IDEM did not submit counter-evidence on this point. Citing an Indiana decision excusing compliance with a regulatory requirement made impossible by the death of the claimant, Pedigo v. Miller, 360 N.E.2d 1100 (Ind. Ct. App. 1977), the Court held that Dalton was excused from compliance with the February 17, 2003, Order on impossibility grounds.

The November 20, 2003, decision is subject to appeal. The six independent bases of the decision lend it considerable strength and each has potential application elsewhere. Companies facing enforcement actions by IDEM should carefully examine the applicability of each of the defenses advanced by Dalton. While administrative adjudication of technical regulatory matters often is required, purely legal defenses may be raised in court without exhaustion of administrative remedies.

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