On July 8, the landscape of new source review (NSR) / prevention of significant deterioration (PSD) case law received additional clarity when the Seventh Circuit issued its much anticipated decision in United States v. Midwest Generation LLC.  The decision, penned by Chief Judge Frank Easterbrook for a three judge panel, affirmed the lower court’s March 16, 2011 dismissal of allegations associated with the United States and State of Illinois’ NSR /PSD claims.

Specifically, the opinion dismisses claims associated with nine alleged modifications at five facilities that occurred between 1994 and 1999.  Allegations associated with these modifications included (1) that they were completed without first obtaining a preconstruction permit as required by 42 U.S.C. §7475; (2) that the units were subsequently operated without applying best available control technology (BACT); and (3) that the Title V operating permits improperly failed to incorporate BACT.  The government did not file suit until August 2009.  The Seventh Circuit, however, found that the civil penalty claims associated with the NSR/PSD violations were barred by an applicable five year statute of limitations.  (Injunctive relief claims were not before the court.)

The three defendants, Midwest Generation, Edison Mission Energy and Commonwealth Edison Company are all current or former owners of the units at issue.  The former owner conducted the alleged modifications and the lower court carefully analyzed the asset purchase agreement to determine whether the current owner was liable under the theory of successor liability.  Importantly, the Seventh Circuit found it did not have to reach the issue of ownership change since the statute of limitations already barred the government’s claim.  Judge Easterbrook wrote: “Nor need we worry about whether the sale had any effect on liability, and if so who would be responsible today.  Midwest cannot be liable when its predecessor in interest would not have been liable had it owned the plants continuously.”  Opinion at p. 3.  The opinion makes clear that the five year statute of limitations cut off liability.  Additionally, the court cited the US Supreme Court’s decision in Gabelli v. SEC to explain that the discovery rule was not available to the government.

Numerous NSR/PSD decisions wade into the murky waters of whether the failure to obtain a preconstruction permit is a discreet violation, or a continuous or ongoing violation.  The Seventh Circuit attempted to clarify the government’s arguments that the failure to obtain a construction permit is a continuing violation.  Judge Easterbrook described the different arguments as follows:: (1) a continuing violation results from ongoing discrete violations; (2) a cumulative violation results from acts that add up to one violation only when repeated; and (3) a continuing injury situation is when there is lingering injury from a completed violation.  The Court stated clearly that a violation of 42 U.S.C. §7475 (the requirement to obtain a preconstruction permit) is not a continuing violation.  Further, addressing when a violation occurs, the Court explained: “[t]he violation is complete when construction commences without a permit in hand.  Nothing in the text of §7475 even hints at the possibility that a fresh violation occurs every day until the end of the universe if an owner that lacks a construction permit operates a completed facility.”  Opinion at p. 5.

The Seventh Circuit agreed with the Eighth Circuit’s 2010 decision in Sierra Club v. Otter Tail Power Co. and the Eleventh Circuit’s 2007 decision in National Parks and Conservation Association Inc. v. Tennessee Valley Authority, both of which held that the failure to obtain a preconstruction permit was a single, discrete violation and that lawsuits brought after the expiration of the five year statute of limitations were barred.  Judge Easterbrook also distinguished the Sixth Circuit’s 2007 opinion in National Parks and Conservation Association Inc. v. Tennessee Valley Authority because of its reliance on the unique structure and wording of Tennessee’s statutes and state implementation plan.  As to whether the Illinois statute can be read to impose the same ongoing obligations as the Tennessee statute, the Seventh Circuit left that for the District court to decide.  However, the opinion does state “[t]o the extent that plaintiffs maintain that Commonwealth Edison has violated §5/9.1(d)(2) because it earlier violated §7475, the argument is wrong.”  Opinion at p. 7.  With this decision, three circuit courts of appeal (Seventh, Eighth and Eleventh) have found that the failure to obtain a preconstruction permit is a single violation, and any related lawsuit must be brought within five years.

The Court’s conclusion emphasized that operating facilities are subject to separate operating requirements and that consequences of a wrongful act are not independently wrongful.  The Court concluded: “Plaintiffs’ contention that a continuing injury from failure to get a preconstruction permit (really, from failure to use BACT) makes this suit timely is unavailing.  What these plants emit today is subject to ongoing regulation under rules other than §7475.  Today’s emissions cannot be called unlawful just because of acts that occurred more than five years before the suit began.  Once the statute of limitations expired, Commonwealth Edison was entitled to proceed as if it possessed all required construction permits.”  Opinion at p. 7.  Although injunctive relief was not before the Court, this passage could be interpreted as a statement that, once the statute of limitations has run, not only are civil penalties unavailable but injunctive relief is not warranted because current emissions are not unlawful.

The Seventh Circuit affirmed the lower court’s decision in its entirety, dismissing the alleged violations of the NSR/PSD requirements as well as any alleged Title V violations associated with the NSR/PSD claims.