United Affiliates Corp. v. United States, 17-67
| Decision Date | 29 May 2019 |
| Docket Number | No. 17-67,17-67 |
| Parties | UNITED AFFILIATES CORPORATION AND MINGO LOGAN COAL LLC, Plaintiffs, v. THE UNITED STATES, Defendant. |
| Court | U.S. Claims Court |
Fifth Amendment Taking; Categorical Taking; Regulatory Taking; Clean Water Act; Motion to Dismiss for Failure to State a Claim; Rule 12(b)(6); Rule 9(i).
Kevin P. Holewinsky, Jones Day, Washington, D.C., for Plaintiff United Affiliates Corporation, and Robert M. Rolfe, and George P. Sibley II, Hunton & Williams LLP, Richmond, Virginia, for Plaintiff Mingo Logan Coal LLC.
Joshua P. Wilson, with whom was Jean E. Williams, Deputy Assistant Attorney General, Natural Resources Section, Environmental & Natural Resources Division, U.S. Department of Justice, Washington, D.C., for Defendant.
Before the Court is Defendant's motion to dismiss Plaintiffs United Affiliates Corporation's ("United") and Mingo Logan Coal LLC's ("Mingo") complaint for failure to state a claim pursuant to Rule 12(b)(6) of the Court. The Environmental Protection Agency ("EPA") issued a permit pursuant to section 404 of the Clean Water Act allowing certain mining-generated waste disposal operations. The agency then withdrew that permit. Plaintiffs allege that the EPA's permit withdrawal constituted a categorical and regulatory taking of their property under the Fifth Amendment. The Government submits that Plaintiffs fail to allege a compensable property interest and cannot state a categorical takings claim as a matter of law. For the reasons explained below, the Court GRANTS Defendant's motion to dismiss Count I of Plaintiffs' complaint and DENIES Defendant's motion to dismiss Count II.
United owns the surface and most of the mineral rights within a mining region of West Virginia known as Spruce No. 1. Compl. ¶¶ 1, 13. Mingo entered into a long-term lease with United to operate a surface coal mine on United's property. Id. ¶¶ 1, 14, 20. United is entitled to royalties from Mingo based on the amount of coal mined. Id. ¶ 1.
As part of its mining operations, Mingo removes excess rock and dirt from the surface (called "spoil" or "overburden") to access the coal underneath. Id. ¶ 17. Some spoil is returned to the mined area or repurposed for separate development projects. Id. The remaining spoil is placed in areas adjacent to the excavation site, areas known in the region as "hollows". Id. ¶ 18. Occasionally, these hollows contain "waters of the United States".1 Id. Pursuant to section 404 of the Clean Water Act, 33 U.S.C. § 1251, et seq., miners looking to dispose of spoil in a hollow containing "waters of the United States" must first obtain a permit from the EPA ("section 404 permit" or "permit"). Id. ¶ 19.
The Pigeonroost Branch and Oldhouse Branch streams run through the hollow where Mingo sought to dispose of its spoil. The EPA has classified both waterways as "waters of the United States".2 Id. ¶ 43. Accordingly, Mingo applied for a permit in 1997, and the EPA approved Mingo's application in 2007. Id. ¶¶ 2, 42. The permit did not list United as a permittee. Id. ¶ 42. Mingo then began preparing the area to begin mining operations, a process which allegedly cost Mingo millions of dollars. Id. ¶¶ 49, 69.
In 2009, President Obama's new administration sought to tighten regulations on coal mining. Id. ¶¶ 50-60; id. Ex. A. Pursuant to that policy shift, the EPA overhauled its section 404 permit application and review process, subjecting applicants to a stricter set of standards. Id. ¶ 50. The EPA began expressing concerns with Plaintiffs' operation under these new standards, and it officially withdrew the permit on January 13, 2011. Id. ¶ 63. According to Plaintiffs, this action marked the first time that the EPA had ever rescinded an already-issued section 404 permit. Id. ¶ 61.
Mingo then challenged the EPA's decision to rescind its permit as arbitrary and capricious in violation of the Administrative Procedures Act in the U.S. District Court for the District of Columbia and later, the D.C. Circuit. The D.C. Circuit ultimately disagreed with Mingo, finding the EPA's permit withdrawal to be "reasonable, supported by therecord, and based on considerations within the agency's purview." Mingo Logan Coal Co. Inc. v. EPA, 70 F. Supp. 3d 151, 154 (D.D.C. 2014), aff'd sub nom. Mingo Logan Coal Co. v. EPA, 829 F.3d 710 (D.C. Cir. 2016).
On January 13, 2017, Plaintiffs filed a two-count complaint in this Court. Count I alleges that the EPA's permit withdrawal was a categorical taking of Plaintiffs' property. Count II alleges that the EPA's permit withdrawal constituted a regulatory taking of Plaintiffs' property.3 The Government moved to dismiss Plaintiffs' complaint on December 20, 2018. The Government asserts that Plaintiffs fail to state a claim because they (1) fail to allege a compensable property interest, and (2) advance a categorical taking claim that is unsupported by precedent. The matter was fully briefed on March 20, 2019, and the Court heard oral argument on April 10, 2019.4
When considering a motion to dismiss a complaint for failure to state a claim upon which relief may be granted under Rule 12(b)(6), the Court must accept as true all factual allegations submitted by the plaintiff. Bell Atl. Corp. v. Twombly, 550 U.S. 544, 555 (2007). While factual allegations are entitled to the assumption of truth, courts are not "bound to accept as true a legal conclusion couched as a factual allegation." Id. Accordingly, for the plaintiff to survive dismissal, the Court must conclude that "the plaintiff pleads factual content that allows the court to draw the reasonable inference that the defendant is liable for the misconduct alleged." Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009) (citing Twombly, 550 U.S. at 556). The plaintiff's factual allegations must be substantial enough to raise the right to relief above the speculative level, accepting all factual allegations in the complaint as true and indulging all reasonable inferences in favor of the non-movant. Twombly, 550 U.S. at 545; Chapman Law Firm Co. v. Greenleaf Constr. Co., 490 F.3d 934, 938 (Fed. Cir. 2008).
The Fifth Amendment to the U.S. Constitution provides that "private property [shall not] be taken for public use, without just compensation." U.S. Const. amend. V. A takings claim is evaluated under a two-part analysis. Acceptance Ins. Cos., Inc. v. United States, 583 F.3d 849, 854 (Fed. Cir. 2009) (citations omitted). Therefore, to state a claim, Plaintiffs must only plead facts that, when accepted as true, show that they hold a property interest, and that the Government took that interest.
Defendant makes three challenges: (1) Rule 9(i) of the Court establishes a heightened pleading standard for Fifth Amendment takings claims which Plaintiffs have not met; (2) regardless of whether a heightened pleadings standard exists, Plaintiffs' claims fail because they do not allege ownership over the hollows regulated by the section 404 permit; and (3) Plaintiffs allege no state law property right that would allow them to dispose of spoil in "waters of the United States".5
Rule 9(i) requires that plaintiffs "pleading a claim for just compensation under the Fifth Amendment . . . must identify the specific property interest alleged to have been taken by the United States . . . ." The Government argues that this imposes a more exacting pleading requirement than traditional notice pleading standards on those bringing a takings claim. Not so. Rule 9(i) recasts the familiar two-part test for takings (possession of a cognizable property interest and a taking of that interest) so as to guide a prospective plaintiff's pleading. Accordingly, Rule 9(i) applies the familiar Twombly and Iqbal notice pleading standards to the takings context and does not establish a heightened requirement. At this stage, a basic statement of the property interests at issue is enough state a claim. See In re Upstream Addicks & Barker (Texas) Flood-Control Reservoirs, 138 Fed. Cl. 658, 669 (2018) ().
The section 404 permit indirectly regulates mining by directly regulating mining-generated waste disposal operations. The Government contends that Plaintiffs do not allege that they each individually hold interests in both the land to be mined and the hollows in which spoil will be filled. This distinction is significant because "a claimant seeking compensation from the government for an alleged taking of private property must, at a minimum, assert that its property interest was actually taken by the government action."Air Pegasus of D.C., Inc. v. United States, 424 F.3d 1206, 1216 (Fed. Cir. 2005). Allegations of a "derivative injury" stemming from governmental regulation of a third party's property, therefore, are insufficient to state a takings claim. Id. Accordingly, ownership of just the land to be mined but not of the disposal site is insufficient to state a claim.
The Plaintiffs do not hold identical interests. The Court will address the Defendant's allegations as they apply to each Plaintiff individually.
Plaintiffs allege that Mingo and United "entered into a 'Coal Lease Agreement . . . that covers the mining of the Spruce No. 1 area." Compl. ¶ 20. Thereafter, Mingo applied for, and the EPA issued, a section 404 permit to dispose of spoil in the hollows. Id. ¶ 42. The...
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