Sierra Club, Lone Star Chapter v. Cedar Point Oil Co. Inc.

• Decision Date: 11 January 1996
• Docket Number: 95-20227,Nos. 94-20461,s. 94-20461
• Citation: 1996 WL 11077,73 F.3d 546
• Parties: , 26 Envtl. L. Rep. 20,522 SIERRA CLUB, LONE STAR CHAPTER, Plaintiff-Counter Defendant-Appellee, v. CEDAR POINT OIL COMPANY INC., Defendant-Counter Claimant-Appellant. SIERRA CLUB, LONE STAR CHAPTER, Plaintiff-Counter Defendant-Appellant, v. CEDAR POINT OIL COMPANY INC., Defendant-Counter Claimant-Appellee.
• Court: U.S. Court of Appeals — Fifth Circuit

Page 546

73 F.3d 546

41 ERC 1897, 26 Envtl. L. Rep. 20,522

SIERRA CLUB, LONE STAR CHAPTER, Plaintiff-Counter Defendant-Appellee, v. CEDAR POINT OIL COMPANY INC., Defendant-Counter Claimant-Appellant.

SIERRA CLUB, LONE STAR CHAPTER, Plaintiff-Counter Defendant-Appellant, v. CEDAR POINT OIL COMPANY INC., Defendant-Counter Claimant-Appellee.

Nos. 94-20461, 95-20227.

United States Court of Appeals, Fifth Circuit.

Jan. 11, 1996.

Robert Baxter Wiygul, Denver, CO, David O'Brien Frederick, Henry, Lowerre, Johnson, Hess and Frederick, Austin, TX, for plaintiff-counter defendant-appellee.

David K. McGowan, Jackson, MS, James A. Becker, Jr., John H. Downey, Jackson, MS, for defendant-counter claimant-appellant.

Appeals from the United States District Court for the Southern District of Texas.

Before REYNALDO G. GARZA, KING and HIGGINBOTHAM, Circuit Judges.

KING, Circuit Judge:

These consolidated appeals arise from an action brought by Sierra Club, Lone Star Chapter ("Sierra Club"), against Cedar Point Oil Company ("Cedar Point") under the citizen suit provision of the Clean Water Act ("CWA"), 33 U.S.C. Sec. 1365. Sierra Club alleged that Cedar Point was violating the CWA by discharging produced water into Galveston Bay without a permit and sought civil penalties and an order enjoining the unpermitted discharge. Cedar Point counterclaimed for abuse of process. Before trial, the district court granted summary judgment in favor of Sierra Club on the issue of Cedar Point's liability under the CWA and dismissed Cedar Point's counterclaim. After a bench trial, the district court assessed a civil penalty of $186,070. Cedar Point appeals. The district court also enjoined the discharge of produced water from Cedar Point's oil and gas production operations without a permit; however, the court later modified this injunction to allow Cedar Point to continue the unpermitted discharge. Sierra Club appeals this modification. We affirm in all respects the judgment of the district court.

I. BACKGROUND

A. Facts

1. "Produced Water"

This lawsuit concerns the legality of the disposal of a by-product of the oil and gas production process: "produced water." Produced water originates as source water trapped in underground geological formations with oil and gas. When a well is drilled into a formation, the extraction of oil and gas also brings the water to the surface. During extraction, chemicals used in the drilling process become mixed with the water. The result is produced water. ¹

Part of the production process involves the separation of the produced water from the extracted oil and gas. After separation, the operator must dispose of the produced water. The available methods of disposal include reinjection into an underground reservoir, land disposal, evaporation, and discharge into surface waters. Produced water is the highest volume waste source in offshore oil and gas production operations. ²

2. Cedar Point's Operations

Cedar Point is a Mississippi corporation that owns and operates an oil and gas well and associated facilities in the Cedar Point field ("the field"), which is located in Galveston Bay in Chambers County, Texas. ³ John McGowan ("McGowan"), Cedar Point's principal shareholder, purchased the field from Chevron Corporation ("Chevron") on July 1, 1989. At that time, the field contained twenty-two abandoned wells and three producing wells. McGowan shut down the producing wells approximately one month after he purchased the field. On January 1, 1991, McGowan transferred the field to Cedar Point. ⁴ Later that year, Cedar Point drilled its first well since acquiring the field: state well 1876. ⁵ Cedar Point began producing oil and gas from this well on September 10, 1991.

Cedar Point began to discharge produced water into Galveston Bay at approximately the same time that it began production from state well 1876. This discharge continued through the trial of this action in May 1994, except that the discharge was temporarily suspended between April and August of 1992. Throughout this period, the average daily discharge ranged between 500 to 1200 barrels per day. ⁶ Cedar Point's produced water contained, inter alia, barium, benzene, zinc, chlorides, sulfate, bicarbonate, ammonia, naphthalene, phenolic, radium, oil and grease. Cedar Point disposed of its produced water in the following manner: (1) the oil, gas, and water mixture produced from state well 1876 was piped to a platform in Galveston Bay for the first phase of separation; (2) after the initial separation, the remaining mixture was then piped to shore where more oil was separated in a series of tanks; (3) the produced water was then transferred to settling pits so that some constituents could settle out of the water; and (4) the remaining produced water was drained out of the pits and discharged through a pipe over the bulkhead into Galveston Bay. ⁷

3. The Permits

Between August 1971 and July 1989, Chevron discharged produced water from the onshore separating facility pursuant to a permit issued by the Texas Railroad Commission ("the Railroad Commission"). This permit set limitations only on the oil and grease content of the produced water that was being discharged. After McGowan purchased the field, the Railroad Commission transferred Chevron's Commission permit to McGowan. The letter from the Railroad Commission authorizing this transfer stated that a permit from the Environmental Protection Agency ("EPA") may be required for the discharge of produced water under the National Pollutant Discharge Elimination System ("NPDES"). David Russell ("Russell"), who reviewed the transferred permit for McGowan, testified that he did not read this sentence in the letter; however, he did review Chevron's files, which did not reveal any NPDES permit or NPDES permit application in the twenty-year period of Chevron's ownership of the field. Based on this review, Russell did not apply for a NPDES permit for McGowan at that time.

After McGowan transferred the field to Cedar Point in 1991, Russell commenced negotiations with the Railroad Commission to transfer McGowan's Commission permit to Cedar Point. This negotiation took several months, apparently because Cedar Point and the Railroad Commission disputed the terms of the Commission permit that Cedar Point would ultimately receive. Cedar Point finally obtained a Commission permit in September 1992, again establishing limitations only on the oil and grease content of the produced water that was being discharged. ⁸ According to Russell, while he was negotiating the terms of this permit, Railroad Commission employees informed him that oil and gas operators in Galveston Bay were being sued for discharging produced water into the bay without a NPDES permit. Also, the final Commission permit that Cedar Point received in September 1992 advised that a NPDES permit may be required for the discharge of produced water and that EPA was considering prohibiting such discharges. Accordingly, on October 15, 1992, Cedar Point applied to EPA for a NPDES permit for its produced water discharges.

By letter dated November 5, 1992, EPA informed Cedar Point that its application for a NPDES permit had been reviewed and determined to be administratively complete. Since this acknowledgment, however, EPA has failed to act on the application. On December 30, 1992, Russell submitted a request to EPA under the Freedom of Information Act ("FOIA"), ⁹ asking whether EPA had ever issued a permit for the discharge of produced water in Texas. On February 4, 1993, EPA responded that it had issued two such permits. The first permit was a general permit ¹⁰ that applied to oil and gas operators in the "Offshore Subcategory" in Louisiana and Texas and established limitations on the oil and grease content of discharged produced water. ¹¹ The second permit was also a general permit that applied to oil and gas operators in the "Onshore Subcategory" in Louisiana, New Mexico, Oklahoma, and Texas; this permit established an absolute prohibition on the discharge of produced water by these entities. ¹² Neither of these permits applied to Cedar Point because Cedar Point is in the "Coastal Subcategory." ¹³ In fact, at that time the only regulation that EPA had promulgated that applied to the discharge of produced water by Coastal Subcategory operators was an effluent limitation on the oil and grease content of discharged produced water; ¹⁴ however, EPA had never implemented this limitation through a general permit or individual permits. As a result, none of Cedar Point's produced water discharges was authorized by a NPDES permit.

B. Procedural History

1. Cedar Point's Collateral Action

By letter dated December 16, 1992, Sierra Club informed Cedar Point that the discharge of produced water without a NPDES permit violated the CWA and that Sierra Club planned to seek monetary penalties and an order enjoining Cedar Point's unpermitted discharges. ¹⁵ In response to this letter, Cedar Point filed an action against Sierra Club and EPA in the United States District Court for the Southern District of Mississippi. In its complaint, Cedar Point alleged, inter alia, that Sierra Club had "threatened" Cedar Point with a citizen suit and, impliedly, that EPA and Sierra Club were conspiring to deprive Cedar Point of unspecified constitutional rights. Specifically, Cedar Point requested the district court to issue an order that: (1) required EPA to respond to Cedar Point's then-unanswered FOIA request; (2) required EPA to rule upon Cedar Point's application for a NPDES permit; and, (3) enjoined Sierra Club from filing a citizen suit against Cedar Point. On July 12, 1993, the district court dismissed Cedar Point's claims against Sierra Club. ¹⁶

2. Sierra Club's Citizen Suit

Sierra Club filed the present action against Cedar Point on April 20, 1993, in the United States District Court for the Southern District of Texas. In its complaint, Sierra Club prayed for: (1) a judgment...