The Ark. Dep't Of Envtl. Quality v. Oil Producers Of Ark.

• Decision Date: 21 May 2009
• Docket Number: No. 08-890.,08-890.
• Citation: 2009 Ark. 297,318 S.W.3d 570
• Parties: The ARKANSAS DEPARTMENT OF ENVIRONMENTAL QUALITY, Appellant,v.OIL PRODUCERS OF ARKANSAS, Betsy Production Company, Inc., Jerry Langley Oil Company, LLC, Shuler Drilling Company, Inc., Mike A. Davis, James Langley, Gary Sewell, and Robert Reynolds, Appellees.
• Court: Arkansas Supreme Court

2009 Ark. 297

318 S.W.3d 570

The ARKANSAS DEPARTMENT OF ENVIRONMENTAL QUALITY, Appellant,v.OIL PRODUCERS OF ARKANSAS, Betsy Production Company, Inc., Jerry Langley Oil Company, LLC, Shuler Drilling Company, Inc., Mike A. Davis, James Langley, Gary Sewell, and Robert Reynolds, Appellees.

No. 08-890.

Supreme Court of Arkansas.

May 21, 2009.

Dustin McDaniel, Att'y Gen., by: Charles Moulton, Sr., Ass't Att'y Gen., and Kendra Akin Jones, Ass't Att'y Gen., for appellant.

Perkins & Trotter, PLLC, by: G. Alan Perkins and John F. Peiserich; Little Rock, and Shackleford, Phillips & Ratcliff, P.A., by: Brian H. Ratcliff, El Dorado, for appellees.

ROBERT L. BROWN, Justice.

The appellant, the Arkansas Department of Environmental Quality (“ADEQ”), appeals from an order of the Union County Circuit Court denying the ADEQ's motion to dismiss on grounds of sovereign immunity.

On December 27, 2007, appellees Oil Producers of Arkansas; Betsy Production Company, Inc.; Jerry Langley Oil Company, LLC; Shuler Drilling Co., Inc.; Mike A. Davis; James Langley; Robert Reynolds; and Gary Sewell (collectively “OPA”), filed a complaint against the ADEQ, seeking declaratory and injunctive relief which stemmed from the ADEQ's issuance of two general permits for the construction of pits at drilling sites and for the disposal of wastes from drilling activities: “Authorization to Construct, Operate and Close the Pits Associated with Oil and Gas Well Exploration” (Permit No. 00000-WG-P) (“Pit Permit”), and “Authorization to Land Apply Drilling Fluids Under the Provisions of the Arkansas Water and Air Pollution Control Act (Act 472 of 1949, as amended, A.C.A. § 8-4-101 et seq.) and A.C.A. § 8-1-201 et seq.” (Permit No. 00000-WG-LA) (“Land Application Permit”).

According to OPA's complaint, the permits contained numerous regulatory provisions affecting oil and gas production that purport to apply to all industry parties statewide and which subject noncomplying parties to civil and criminal penalties. OPA's complaint set forth the following grounds as reasons for its requested declaratory and injunctive relief: (1) the ADEQ lacked jurisdiction to regulate in the area of oil and gas law because the Oil and Gas Commission is vested with exclusive jurisdiction and authority to regulate oil and gas drilling and production operations in Arkansas; (2) the ADEQ permits were an unlawful attempt to promulgate administrative rules because the ADEQ lacked statutory rulemaking authority and failed to comply with proper rulemaking procedures; and (3) the permits violated statutory requirements for creating permits, conflicted with an existing regulation of the Arkansas Pollution Control & Ecology Commission, and required unlawfully established permit fees.

The ADEQ moved to dismiss OPA's complaint and asserted (1) that it was immune from suit under article 5, section 20 of the Arkansas Constitution; (2) that OPA had failed to exhaust its administrative remedies under Arkansas Pollution Control and Ecology Commission Regulation No. 8; and (3) that venue was improper in Union County. OPA responded and also moved to stay enforcement of the ADEQ permits.

The circuit judge held a hearing on the ADEQ's motion to dismiss and OPA's motion for stay, following which the circuit judge took both motions under advisement. On April 22, 2008, while the motions were still under advisement, OPA filed an amended complaint that differed from the original complaint only in that it sought to establish OPA as the representative of a class of parties allegedly affected by the pending permits. The ADEQ moved to dismiss the amended complaint on May 7, 2008, and asserted in that motion that OPA had failed to plead sufficient facts to support standing to challenge the ADEQ permits in addition to the grounds asserted in its previous motion to dismiss. In two orders dated May 16, 2008, the circuit judge denied the ADEQ's motions to dismiss and OPA's motion for stay. The ADEQ now brings this interlocutory appeal pursuant to Arkansas Rule of Appellate Procedure-Civil 2(a)(10) solely with respect to the denial of its motion to dismiss on sovereign-immunity grounds.¹

The ADEQ asserts on appeal that, as a state agency, it is immune from suit under article 5, section 20 of the Arkansas Constitution, which provides: “The State of Arkansas shall never be made defendant in any of her courts.” The ADEQ continues that this constitutional provision is violated because OPA's suit for declaratory and injunctive relief seeks to control the action of the State and because a court order finding that OPA has “suffered significant injury” and a “reduction in the value” of its leases “could open the door to further litigation” that could impact the state coffers.

OPA responds that it does not dispute that the ADEQ, as a state agency, is generally entitled to sovereign immunity but asserts that it pled sufficient facts in its amended complaint to meet two recognized exceptions to the sovereign-immunity doctrine. The first exception relied on by OPA is that equity has jurisdiction to enjoin or restrain state officials or agencies from acts which are ultra vires, arbitrary, capricious, or in bad faith. As to the second exception, OPA asserts it pled sufficient facts to show that the General Assembly waived the ADEQ's immunity by its enactment of the Arkansas Administrative Procedure Act.

The ADEQ counters that it acted within its express statutory and regulatory authority in issuing the permits. The ADEQ admits that it lacks statutory authority to regulate drilling and production of oil and gas but claims that the permits at issue were “not an attempt to regulate the drilling for, or production of, oil and natural gas.” Rather, it asserts that the permits were “environmental permits,” which it had express statutory authority to issue under Arkansas Code Annotated section 8-1-202. The ADEQ further asserts that it is not subject to the Administrative Procedure Act, as this court recognized in Ark. Dep't of Envtl. Quality v. Al-Madhoun, 374 Ark. 28, 285 S.W.3d 654 (2008).

In reviewing the circuit judge's decision on a motion to dismiss, this court has said:

[W]e treat the facts alleged in the complaint as true and view them in the light most favorable to the party who filed the complaint. In testing the sufficiency of the complaint on a motion to dismiss, all reasonable inferences must be resolved in favor of the complaint, and the pleadings are to be liberally construed. However our rules require fact pleading, and a complaint must state facts, not mere conclusions, in order to entitle the pleader to relief.

Ark. Tech Univ. v. Link, 341 Ark. 495, 501, 17 S.W.3d 809, 812 (2000) (internal citations omitted). Our standard of review for the denial of a motion to dismiss is whether the circuit judge abused his or her discretion. See

S. Coll. of Naturopathy v. State ex rel. Beebe, 360 Ark. 543, 203 S.W.3d 111 (2005).

We first address OPA's contention that the General Assembly waived ADEQ's sovereign immunity pursuant to section 25-15-214 of the Arkansas Administrative Procedure Act. OPA relies on section 25-15-214, which provides:

In any case of rule making or adjudication, if an agency shall unlawfully, unreasonably, or capriciously fail, refuse, or delay to act, any person who considers himself or herself injured in his or her person, business, or property by the failure, refusal, or delay may bring suit in the circuit court of any county in which he or she resides or does business, or in Pulaski County Circuit Court, for an order commanding the agency to act.

Ark.Code Ann. § 25-15-214 (2007). This court has held that section 25-15-214 authorizes a circuit court to order an agency that fails to act to do so, when that failure injures a person or that person's property and when the agency has acted unlawfully, unreasonably, or capriciously. See

Oliver v. Pulaski County Circuit Court, 340 Ark. 681, 13 S.W.3d 156 (2000). Last year, this court held that the Arkansas Administrative Procedure Act, and specifically section 25-15-214, did not apply to the ADEQ because the ADEQ is required to follow the specific administrative procedures set forth in the Arkansas Pollution Control and Ecology Commission's Regulation No. 8 Ark. Dep't of Envtl. Quality v. Al-Madhoun, 374 Ark. 28, 285 S.W.3d 654 (2008). Accordingly, the ADEQ's right to sovereign immunity was not waived by virtue of the General Assembly's enactment of the Arkansas Administrative Procedure Act, and OPA's reliance on this alleged exception is without merit.

We turn then to the second alleged exception to sovereign immunity that OPA raises, and that is that the ADEQ acted ultra vires in issuing the permits. This court has long recognized that a state agency may be enjoined if it can be shown that the agency's pending action is ultra vires or outside the authority of the agency. Ark. Game & FishComm'n v. Eubank, 256 Ark. 930, 512 S.W.2d 540 (1974) (finding that the Game and Fish Commission's proposed fish-kill was within its constitutional authority); see also Grine v. Bd. of Trustees, 338 Ark. 791, 2 S.W.3d 54 (1999) (recognizing exception but finding that instructor's complaint failed to allege any specific acts that were ultra vires, in bad faith, or arbitrary with respect to university's refusal to extend time to complete doctoral requirements); Villines v. Lee, 321 Ark. 405, 902 S.W.2d 233 (1995) (recognizing exception but finding no allegations of ultra vires acts); Cammack v. Chalmers, 284 Ark. 161, 680 S.W.2d 689 (1984) (finding that the circuit court had jurisdiction to enjoin the University of Arkansas Board of Trustees for the failure to follow charitable trust guidelines under ultra vires exception to sovereign immunity); Toan v. Falbo, 268 Ark. 337, 595 S.W.2d 936 (1980) (circuit courts without jurisdiction to enjoin state agencies and commissions absent allegations of ultra vires actions); Harkey v. Matthews, 243 Ark. 775, 422 S.W.2d 410 (1967) (...