United States v. Nature's Way Marine, L.L.C., 904 F.3d 416 (5th Cir. 2018) (King, Elrod, Haynes)

The question before the court in Nature's Way was "whether the district court was correct in its summary judgment determination that Nature's Way, as the owner of a tugboat, was also 'operating' an oil barge that the tugboat was moving at the time of a collision, as the term is used in the Oil Pollution Act of 1990." 904 F.3d at 417-18 (quoting 33 U.S.C. §§2701-2762). Because the court agreed that the "natural meaning of 'operating' under the statute would apply to the exclusive navigational control that Nature's Way exercised over the barge at the time of the collision," it affirmed the judgment of the district court. Id. at 418.

In January 2013, a tugboat owned by Nature's Way was moving two oil-carrying barges owned by Third Coast Towing down the Mississippi River when the barges collided with a bridge, resulting in the discharge of over 7,000 gallons of oil into the River. Nature's Way  and its insurer as well as Third Coast and its insurer were all designated by the Coast Guard as "responsible parties" under the Oil Pollution Act. Nature's Way spent over $2.99 million on the clean up, and various governmental entities spend over an additional $792,000.

The National Pollution Funds Center manages a claims process that allows responsible parties who are initially overcharged to request reimbursement from the federal government.  The Oil Pollution Act limits the potential liability of a “responsible party” based on the tonnage of the vessels it was operating. 33 U.S.C. §2704(a). After Nature's Way and Third Coast settled a lawsuit between themselves, Nature's Way submitted a claim to the NPFC seeking reimbursement of over $2.13 million on the grounds that its liability should be limited by the tonnage of the tugboat and not the tonnage of the barges.

The NPFC denied Nature's Way's claim, concluding that Nature's Way was an "operator" of the oil-discharging barge at the time of the collision. The United States then sued Nature's Way to recover the additional $792,000-plus from Nature's Way and Third Coast. Nature's Way denied liability and counterclaimed that the NPFC violated the APA by deeming it to be an "operator" of the barge and consequently ineligible for reimbursement of the $2.13 million.

The United States  moved for summary judgment on the "operator" question. The district court granted the motion, and Nature's Way appealed. Before digging into the merits, the CA5 noted the statutory basis for its jurisdiction over the interlocutory appeal.  Nature's Way, 904 F.3d at 419 n.5 (citing 28 U.S.C. §1292(a)(3)).

While the parties had dedicated much of their briefing to the usual arguments about whether Chevron deference was appropriate, the court declined to reach the issue, explaining that "even under a de novo review," Nature's Way was "operating" the barge "in the ordinary and natural sense of the word as it is used in the statute," so resolving the Chevron issue was unnecessary.

Attentive readers will notice that the CA5 finished off its discussion of the Chevron non-issue with a no-doubt very intentional reference to United States v. Mead Corp., 533 U.S. 218 (2001), emphasizing that Chevron deference is appropriate only "in certain cases." Did the court intend this hat-tip as a tell that it had actually resolved the Chevron question at step zero? The remainder of the court's opinion seems to confirm as much. In an unusual move, the court went out of its way to note that "in the appropriate case, a thorough examination of the procedural defects alleged against the [National Pollution Funds Center] in adjudicating claims such as the one here might be warranted." Id. at 419. The court's explanation of its concern is worth quoting in full:

Chevron deference is not warranted where the regulation is ‘procedurally defective’—that is, where the agency errs by failing to follow the correct procedures in issuing the regulation.” Encino Motorcars LLC v. Navarro, —U.S.—, 136 S. Ct. 2117, 2125 (2016)(citing Mead Corp., 533 U.S. at 227).
As alleged in this case, the NPFC considered the findings of a Marine Casualty Investigation Report in adjudicating the claim made by Nature's Way and determining Nature's Way to be an “operator” of the barges. However, 46 U.S.C. §6308(a) clearly states that no part of a Marine Casualty Investigation Report, including its findings of facts, shall be admissible as evidence in “any civil or administrative proceedings.”
The U.S. Coast Guard, which is both the parent agency of the NPFC and the entity that conducts Marine Casualty Investigations, has interpreted 46 U.S.C. §6308(a) as inapplicable to the NPFC claims at issue here on the bases that such claims are an “internal, informal agency process” and that its prior interpretation of the statute—which it had read to exclude using Marine Casualty Investigation Reports as evidence in NPFC claims—was resulting in delays and duplicative efforts. See 71 Fed. Reg. 60,553 (Oct. 13, 2006); 72 Fed. Reg. 17, 574-02 (Apr. 9, 2007).
The Coast Guard's interpretation of 46 U.S.C. §6308(a) as inapplicable to the administrative proceeding of an NPFC claim is puzzling to say the least. The most natural reading of a statute that states no part of a Marine Casualty Investigation Report shall be admissible as evidence in “any civil or administrative proceedings” would be that such reports cannot be used as evidence in any civil or administrative proceedings—not that such reports cannot be used in any civil or administrative proceedings except for NPFC claims.
In an appropriate case, further examination is warranted on the question of whether the plain language of 46 U.S.C. §6308(a) permits the Coast Guard's interpretation that the statute is inapplicable to NPFC claims, and, if that is not a permissible interpretation, whether the consideration of such reports in an NPFC claim would be a procedural defect precluding Chevron deference. However, this case is not the appropriate one to reach that issue because, without any deference whatsoever, we conclude that the NPFC's interpretation of the word “operating” is correct under the ordinary and natural meaning of the term.

I'll be watching this issue and will keep you updated.

PBBM-Rose Hill, Ltd. v. Comm'r of IRS, 900 F.3d 193 (5th Cir. 2018) (King, Southwick, Ho, JJ.) (Judge Ho concurs in judgment only)

This case involves an appeal from a tax court decision. PBBM Rose Hill, Ltd., claimed a charitable contribution deduction of $15mm+ for its donation of a conservation easement to the North American Land Trust. Later, the IRS issued a final partnership administrative adjustment that determined PBBM Rose Hill, Ltd., was not entitled to the deduction. The IRS also assessed an overvaluation penalty against PBBM Rose Hill, Ltd. The Fifth Circuit affirmed. Judge King wrote for the panel, and Judge Ho concurred in the judgment only.

The opinion is detailed, and those interested in tax will probably want to read it. While you're at it, why not peruse the D.C. Circuit's recent decision on a similar issue in Mellow Partners v. Comm'r of IRS, 890 F.3d 1070 (D.C. Cir. 2018), as well? The contrasting discussions of Auer deference in the two opinions is intriguing if you ask me.  

Entergy Tex., Inc. v. Nelson, 889 F.3d 205 (5th Cir. 2018) (Reavley, Smith, Owen)

This is a complicated and important FERC case. Entergy Texas, Inc. (ETI), an operating company of Entergy Corporation, brought suit to enjoin enforcement of an order of the Public Utility Commission of Texas (PUCT). The district court granted ETI's request, triggering PUCT and the Texas Industrial Energy Consumers (TIEC, an intervenor)--to appeal.

As is typical in FERC cases, the regulatory background in Entergy is very complicated. Because ETI sells electricity across state lines, it is subject to an intimidating array of regulations from several federal and state agencies, including (but by no means limited to) FERC and PUCT. Under the Federal Power Act, FERC and the states exercise distinct and non-overlapping jurisdiction over the sale and transmission of electricity.  As Judge Reavley's opinion for the Entergy majority aptly explained, under this scheme, "there is a risk that one regulator acting in its proper capacity can disrupt the regulatory efforts of the other." In such cases of conflict, the Constitution's Supremacy Clause dictates that FERC wins.

ETI succeeded in convincing the district court that this case presented such a conflict. In particular, it argued that PUCT's order requiring the company to pass on to Texas customers certain production cost equalization payments it received from sister companies contradicted FERC's order authorizing the company to receive the payments in the first place. The district court agreed, but Judges Reavley and Smith were not persuaded. They reversed the district court's decision enjoining the PUCT order. Judge Owen dissented.

Given that four federal judges found themselves evenly divided on the question presented, it should come as no surprise that the arguments involved are complicated. I won't attempt to summarize them all here, but I think everyone should read a complicated FERC case like this one at least once in their life to get a feel for the legal complexities many regulated entities face every day in our modern federal system. You'll never look at "turning on the lights" the same way again.

Fifth Circuit Update Number 1, Part 2
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