Ormet Corp. v. Ohio Power Co.

• Decision Date: 23 October 1996
• Docket Number: No. 95-1835,95-1835
• Citation: 98 F.3d 799
• Parties: , 65 USLW 2295, 27 Envtl. L. Rep. 20,302 ORMET CORPORATION, now known as Ormet Primary Aluminum Corporation, Plaintiff-Appellant, v. OHIO POWER COMPANY; American Electric Power Service Corporation, Defendants-Appellees, and American Electric Power Company, Incorporated; John M. McManus; John E. Hollback, Jr.; Environmental Protection Agency; Carol M. Browner, as Administrator of the United States Environmental Protection Agency, Defendants.
• Court: U.S. Court of Appeals — Fourth Circuit

Page 799

98 F.3d 799

43 ERC 1545, 65 USLW 2295, 27 Envtl.

L. Rep. 20,302

ORMET CORPORATION, now known as Ormet Primary Aluminum Corporation, Plaintiff-Appellant, v. OHIO POWER COMPANY; American Electric Power Service Corporation, Defendants-Appellees and American Electric Power Company, Incorporated; John M McManus; John E. Hollback, Jr.; Environmental Protection Agency; Carol M. Browner, as Administrator of the United States Environmental Protection Agency, Defendants.

No. 95-1835.

United States Court of Appeals Fourth Circuit.

Argued Jan. 31, 1996.

Decided Oct. 23, 1996.

ARGUED: Charles Stanley Warren, Robinson, Silverman, Pearce, Aronsohn & Berman, New York City, for Plaintiff-Appellant. Janet J. Henry, Porter, Wright, Morris & Arthur, Columbus, OH, for Defendants-Appellees. ON BRIEF: Ronald M. Musser, Phillips, Gardill, Kaiser & Altmeyer, Wheeling, WV, for Plaintiff-Appellant. Robert L. Brubaker, Porter, Wright, Morris & Arthur, Columbus, OH; Michael B. Victorson, Robinson & McElwee, Charleston, WV, for Defendants-Appellees.

Before WILKINS, NIEMEYER, and MICHAEL, Circuit Judges.

Vacated and remanded by published opinion. Judge NIEMEYER wrote the opinion, in which Judge WILKINS and Judge MICHAEL joined.

OPINION

NIEMEYER, Circuit Judge:

Congress added Title IV to the Clean Air Act in 1990 to address the problem of acid rain. Title IV prescribes limits for the emissions of sulfur dioxide and nitrogen oxides and authorizes the Environmental Protection Agency (EPA) to issue permits with emission allowances to emit those polluting gases within the prescribed limits. To minimize pollution reduction costs and create incentives for aggressive and innovative pollution control efforts, Title IV authorizes permit holders to sell and transfer emission allowances in a competitive market, intending for allowances to trade as a commodity with durable economic value.

Ormet Corporation, an aluminum manufacturer with a plant near Hannibal, Ohio, brought this action against Ohio Power Company, an electric utility, and affiliated companies, claiming a right to 89% of the emission allowances that the EPA had issued for Ohio Power's Kammer Generating Station, near Moundsville, West Virginia. Ormet based its claim on the assertion that under its contractual arrangement with Ohio Power for electrical power, Ormet pays a proportionate share of the Kammer plant's operating and maintenance costs, and therefore, it is entitled, pursuant to § 408(i) of the Clean Air Act, to its proportionate share of the emission allowances issued for the Kammer plant. Ormet contends that those allowances are worth more than $40 million.

The district court dismissed Ormet's complaint for lack of subject matter jurisdiction. It interpreted Ormet's claim as a challenge to Ohio Power's Acid Rain Permit issued by the EPA and, therefore, a "collateral attack on the EPA's decision to allocate allowances to the private defendants." Observing that Ormet was "involved with the permit process," the court held that Ormet's exclusive avenue to review the EPA's decision to issue the permit to Ohio Power was through § 307 of the Clean Air Act, which provides for review of final EPA action exclusively by the United States courts of appeals. The court thus concluded that it lacked jurisdiction to entertain Ormet's suit.

On appeal, Ormet maintains that it is not challenging any EPA action in issuing the permit or establishing the allowances, but rather asserting a proprietary interest in those allowances now held by Ohio Power. It argues that § 408(i) of the Clean Air Act creates an implied cause of action to adjudicate disputes over emission allowances or alternatively that its cause of action turns on a construction of federal law and that the district court therefore should have entertained the action under its federal-question jurisdiction authorized by 28 U.S.C. § 1331.

We agree with Ormet that § 307 of the Clean Air Act does not apply to its claim, but we do not agree that § 408(i) of the Clean Air Act creates an implied cause of action. Nevertheless, we conclude that Ormet's action arises under federal law within the meaning of 28 U.S.C. § 1331 because resolution of Ormet's claim requires the determination of substantial federal issues. Accordingly, we vacate the district court's dismissal order and remand this case for further proceedings.

I

Title IV of the Clean Air Act (the "Act"), enacted as part of the Clean Air Act Amendments of 1990, Pub.L. No. 101-549, 104 Stat. 2399 (1990), created an Acid Rain Program under the EPA's administration. The Act prescribes limits for emissions of sulfur dioxide and nitrogen oxides from specified electric utility plants in the contiguous 48 states, including the Kammer plant. 42 U.S.C. §§ 7651c-7651d. The Act requires that owners or operators of fossil fuel-fired combustion devices, referred to as "units," obtain emissions permits from the EPA for each location or "source" where units exist. 42 U.S.C. § 7651g. As part of the permit application, a designated representative of the owner or owners must submit a "certificate of representation" in which he must certify his authority to act on behalf of the owner or owners. 42 U.S.C. § 7651g(i); 40 C.F.R. § 72.24. Each permit allocates to each unit a number of emission "allowances" authorized by statute for the location, and each allowance authorizes the holder to emit one ton of sulfur dioxide. 42 U.S.C. §§ 7651g(a), 7651a(3). The Act provides that these emission allowances may be bought and sold as any other commodity. 42 U.S.C. § 7651b(b); 101 Cong. Rec. S16980 (daily ed. Oct. 27, 1990) ("[A]llowances will be treated in part like economic commodities." statement of Sen. Moynihan). To simplify administration of the Act, the Act provides that where there are multiple owners of a fossil fuel-fired unit, the designated representative must hold the allowances issued for it and distribute them and the proceeds from transactions involving them. 42 U.S.C. § 7651g(i).

By establishing a system of marketable allowances, the Act intends to maximize the range of choices that emission sources have for complying with their emission limitation requirements, thereby minimizing costs and maximizing flexibility and economic efficiency in reducing pollution. Thus, a holder of allowances who has addressed pollution emissions and reduced them below the levels authorized may sell the excess allowances to the owner of some other unit who has need of greater emission authority. The transferability of allowances having durable economic value is, accordingly, expected to create incentives for aggressive and innovative efforts to control pollution.

Ormet claims that it is a partial owner of the Kammer plant and therefore is entitled to a proportionate share of the plant's allowances. To enforce its claim, Ormet filed this action in the district court against Ohio Power and affiliated companies and employees, ¹ seeking a declaratory judgment that it owns 89% of the allowances issued for the Kammer plant because it is contractually obligated to contribute to the operation and maintenance of each of the plant's units for the "life of the unit," and it has paid 89% of those costs. See 42 U.S.C. § 7651a(27); 40 C.F.R. § 72.2 (defining owner to include a party with a life-of-the-unit contractual arrangement). ² Ormet alleges that because it is a participating owner § 408(i) of the Act--which provides that where there are multiple owners, "allowances and the proceeds of transactions involving allowances will be deemed to be held or distributed in proportion to each holder's legal, equitable, leasehold, or contractual reservation or entitlement"--entitles it to a share of the Kammer plant allowances. 42 U.S.C. § 7651g(i). In its complaint Ormet also seeks an injunction prohibiting Ohio Power and its affiliates from "using, transferring, selling, encumbering, disposing or otherwise exercising control over plaintiff's share of the allowances." The facts alleged in the complaint, which we accept as true in reviewing a dismissal order, reveal that in 1957 Ormet entered into a series of agreements with Ohio Power to satisfy Ormet's electrical power needs for its new aluminum production plant in Hannibal, Ohio. Under those agreements, Ormet became the owner of two of three fossil fuel-fired units at the Kammer plant, and Ohio Power became the owner of the third. The parties also agreed to undivided ownership of the common areas in proportion to their ownership of the units.

In 1966, as Ormet's power needs increased, Ormet and Ohio Power revised their arrangement and executed a new contract entitled "Power Agreement" under which Ohio Power acquired all of Ormet's ownership interest in the Kammer plant. Under the new agreement, Ohio Power agreed to supply Ormet with specified amounts of electrical power, and Ormet agreed to pay for Kammer plant costs in proportion to the amount of power taken. The 1966 Power Agreement had a 25-year term with an option for a 5-year extension, which Ormet exercised in 1991. Ormet alleged that it has taken approximately 89% of the Kammer plant's power capacity under the 1966 Power Agreement and has paid 89% of the plant's operating costs.

Upon enactment of Title IV of the Clean Air Act in 1990, Ohio Power designated employees of an affiliated company as its "designated representative" for obtaining and administering the Acid Rain Permit, including holding the allowances issued for the Kammer plant. Ormet alleged that because Ohio Power's designated representative failed to name Ormet as an owner in Ohio Power's Acid Rain Permit application submitted to the EPA, the designated representative falsely and misleadingly certified to the EPA that Ohio Power was the sole owner of the Kammer plant and that it alone was entitled to all allowances. See 40 C.F.R. §§ 72.20-.25. Ormet alleged that through these misrepresentations, Ohio Power "expropriated" all of the Kammer...