SELECTED TEXAS WATER QUALITY AND TPDES PERMIT ISSUES. Leonard H. Dougal Jackson Walker L.L.P.

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1 SELECTED TEXAS WATER QUALITY AND TPDES PERMIT ISSUES Leonard H. Dougal Jackson Walker L.L.P. Introduction This paper explores selected topics of recent interest involving water quality permitting, including federal court decisions construing the Clean Water Act, statutory changes made to Chapter 26 of the Texas Water Code, and rulemaking involving CAFOs. Although federal rules and court decisions are discussed, the topics were chosen based upon the potential impact upon water quality permitting of operations located in Texas. Included first is a summary of recent developments affecting concentrated animal feeding operations ( CAFOs ), including the amendments to the federal CAFO rules and statutory changes made by the Texas Legislature to address specific state CAFO issues. Next, is a discussion of court decisions which deal with the jurisdiction and reach of the federal Clean Water Act and cases which address issues of current import, such as the application of the Act to pesticide applications and to the interbasin transfer and mixing of raw water. Thereafter, is a discussion of recent cases involving agriculture and aquaculture operations, and then a brief discussion the Texas Commission on Environmental Quality s authority and use of general permits to address water quality permitting. Finally, the paper diverges from water quality issues to address the Sarbanes-Oxley Act ( SOA ) and the implications of this new, and far reaching, federal statute on attorneys advising and representing companies which have publicly traded debt or equity, and the implications of SOA on environmental attorneys representing such companies. Clean Water Act Water Quality Permit Issues The starting point for understanding water quality permit issues is Section 301 of the Clean Water Act. The Act prohibits the discharge of any pollutant into the nation s waters, except as permitted or authorized by the Act. 1 The nation s waters include so called navigable waters and wetlands adjacent to navigable waters. See United States v. Riverside Bayview Homes, Inc., 474 U.S. 121, , 106 S.Ct. 455, 88 L.Ed.2d 419 (1985). The Act defines discharge as any addition of any pollutant to navigable waters from any point source. 2 A point source is any discernible, confined and discrete conveyance... from which pollutants are or may be discharged. 3 A pollutant is defined broadly to include: solid waste, sewage, biological materials, heat, industrial waste, municipal waste, and agricultural waste. 4 It is unlawful to 1 33 U.S.C. 1311(a) 2 The term discharge of a pollutant and the term discharge of pollutants each means (A) any addition of any pollutant to navigable waters from any point source, (B) any addition of any pollutant to the waters of the contiguous zone or the ocean from any point source other than a vessel or other floating craft. 33 U.S.C. 1362(12). 3 The term point source means any discernible, confined and discrete conveyance, including but not limited to any pipe, ditch, channel, tunnel, conduit, well, discrete fissure, container, rolling stock, concentrated animal feeding operation, or vessel or other floating craft, from which pollutants are or may be discharged. This term does not include agricultural stormwater discharges and return flows from irrigated agriculture. U.S.C. 1362(14). 4 The term pollutant means dredged spoil, solid waste, incinerator residue, sewage, garbage, sewage sludge, munitions, chemical wastes, biological materials, radioactive materials, heat, wrecked or discarded equipment, rock, sand, cellar dirt and industrial, municipal, and agricultural waste discharged into water. 33 USC 1362(6). 1

2 discharge pollutants into those wetlands which are considered to be waters of the U.S. without a permit or approval from the Army Corps of Engineers. 5 The NPDES permit system allows a person who obtains a NPDES permit (or a comparable permit from the permitting authority of a delegated state) to discharge a pollutant under terms and conditions stated in the permit. The Army Corps of Engineer s administers the Clean Water Act Section 404 permit program to regulate dredge and fill material to be discharged into navigable waters. Concentrated Animal Feeding Operations ( CAFOs ) Amendments to Federal Rules Applicable to CAFOs. On February 12, 2003, the Environmental Protection Agency ( EPA ) published its final amendments to federal NPDES permitting and effluent limitation rules applicable to animal feeding operations ( AFOs ) and concentrated animal feeding operations ( CAFOs ). The rules were promulgated under provisions of the Clean Water Act, which includes CAFOs in the definition of a point source. 6 The amended federal regulations became effective on April 14, 2003, although certain permitting obligations and operational requirements are delayed to dates in the future. The TCEQ has twelve months from the effective date of the EPA rules to adopt changes to conform the agency s CAFO rules 7 to federal requirements. Additional changes to state CAFO rules are necessitated by the current TCEQ rule which causes CAFO registrations (e.g. permits-by- rule) to all expire, at the latest, at midnight, July 27, 2004 (unless extended by action of the TCEQ). 8 The amended federal rules define animal feeding operations 9 and Large CAFOs as follows: (1) Animal feeding operation ( AFO ) means a lot or facility (other than an aquatic animal production facility) where the following conditions are met: (i) (ii) Animals (other than an aquatic animals) have been, are, or will be stabled or confined and fed or maintained for a total of 45 days or more in any 12-month period, and Crops, vegetation, forage growth, or post-harvest residues are not sustained in the normal growing season over any portion of the lot or facility. * * * (4) Large concentrated animal feeding operation ( Large CAFO ). An AFO is defined as a Large CAFO if it stables or confines as many as or more than the number of animals specified in any of the following categories: (i) 700 mature dairy cows, whether milked or dry; 5 33 U.S.C. 1344(a), (d) 6 68 FR 7176 (February 12, 2003) 7 See, 30 TEX ADMIN. CODE, CHAPTER 321, SUBCHAPTER B 8 30 TEX ADMIN. CODE (h) 9 The definition of animal feeding operation is unchanged from the prior regulations, which were first adopted in

3 (ii) (iii) (iv) (v) (vi) (vii) (viii) (ix) (x) (xi) (xii) (xiii) 1,000 veal calves; 1,000 cattle other than mature dairy cows or veal calves. Cattle includes but is not limited to heifers, steers, bulls and cow/calf pairs; 2,500 swine each weighting 55 pounds or more; 10,000 swine each weighing less than 55 pounds; 500 horses; 10,00 sheep or lambs; 55,000 turkeys; 30,000 laying hens or broilers, if the AFO uses a liquid manure handling system; 125,000 chickens (other than laying hens), if the AFO uses other than a liquid manure handling system; 82,000 laying hens, if the AFO uses other than a liquid manure handling system; 30,000 ducks (if the AFO uses other than a liquid manure handling system); or 5,000 ducks (if the AFO uses a liquid manure handling system). The amended federal CAFO rules, include the following changes to current federal requirements (applicable where waters of the United States may be affected): Imposing a 100-year, 24 hour rainfall design requirement on lagoons collecting production area waste water at newly constructed CAFOs which will house swine, poultry or veal (rather than the previous 25 year, 24-hour design requirement); Establishing different design requirements for housed animal operations, such as swine, poultry and veal, as compared to open lot operations such as dairy cattle and beef cattle (which retain the 25 year, 24-hour lagoon design requirement); Requiring the development of site specific nutrient management plans to ensure the proper management of manure, litter, and process waste water and the appropriate agricultural application and utilization of such materials; New record keeping and reporting requirements, including annual reporting of information such as the number and type of animals confined, amount of manure, litter and process waste water generated, and the number of acres of land covered by the nutrient management plan; Imposing a duty to apply and strictly narrowing the circumstances under which large animal feeding operations could claim an exemption to NPDES permitting due the operation s 3

4 oversizing of lagoons and lack of an actual discharge of waste water to waters of the United States; and Defining the scope of the statutory agricultural stormwater discharge exemption 10 and providing an exception for the discharge from land application areas of manure, litter or process waste water which applied in accordance with a nutrient management plan but which is subsequently discharged due to a rainfall event. 11 No Potential to Discharge Determination and State Only Permits. In the preamble to the rules, EPA recognized that a CAFO may have no potential to discharge because the CAFO is located at a great distance from any water of the United States and has been designed to retain rainfall events. 12 The federal rules set forth a process for a no potential to discharge determination for CAFOs, and therefore an exception from NPDES permitting. 13 EPA suggests that, to qualify, the CAFO must demonstrate, to a degree of certainty, that the operation will have no potential to discharge to waters of the U.S. EPA s list of example criteria to demonstrate no potential to discharge includes: 1) operations located in an arid or semi-arid environment; 2) storage of all manure or litter in a covered structure that prevents wind dispersion or contact with rainwater; 3) sufficient containment of a process wastewater and contaminated storm water; and 4) use of an offsite fertilizer plant or composting facility for all manure or litter, rather than land application. 14 The preamble to the rules further suggest that a CAFO which land applies manure or wastewater could conceivably make a showing of no potential to discharge due to lack of proximity to waters of the U.S. A CAFO in Texas which meets the federal no potential to discharge requirement may qualify to hold a state only CAFO permit or authorization. Once TCEQ adopts new rules incorporating the recent amendments to the federal rules, the distinction between TCEQ rules and federal rules is likely to be largely academic, as TCEQ has historically required water quality authorizations for animal feeding operations based upon facility size and operations, not just proximity to federal waters. Further, as described below, the Texas Legislature has imposed other restrictions on the permitting of CAFOs which arise from circumstances not addressed in the federal rules. Individual permits granted under Subchapter B by TCEQ are effective for a term of up to five years. All Subchapter B CAFO registrations expire, at the latest, at midnight on July 27, 2004 (e.g., five years after the effective date of the 1999 amendments to the rules). However, if the TCEQ proposes to amend or re-adopt the Subchapter B rules prior to July 27, 2004, all registrations remain in effect until final Commission action on the proposed amendment or re-adoption. 15 State Protection of Sole-Source Surface Drinking Water Supplies. Effective September 1, 2001, the Legislature adopted amendments to Chapter 26 of the Water Code to establish a protection zone around each body of surface water that is designated by the TCEQ as a sole-source surface drinking water supply. 16 The amendments require that the TCEQ process an application for a CAFO, which has any part of a pen, lot, pond or other type of control or retention facility or structure of the CAFO proposed to be located within the boundary of the protection zone, as an individual permit and not as a registration or general permit USCA 1362(14), provides that the term point source does not include agricultural stormwater discharges and return flows from irrigated agriculture CFR (e) FR FR FR TEX ADMIN. CODE (h) 16 Water Code (effective September 1, 2001) 4

5 However, a land application area is not an area of a CAFO, which alone, would trigger the individual permit requirement under this amendment. The TCEQ adopted amendments to Subchapter B to define a sole-source surface drinking water supply to which the protection zone applies, and also defined the area of such a protection zone. The protection zone includes the area within two miles of the normal pool elevation of a sole-source drinking water supply reservoir, and certain portions of a perennial stream that is a tributary to such a reservoir. Additionally, the protection zone extends three linear miles upstream from the sole-source water supply intake point of an intake located on a river and a further two miles in each direction from the river bank upstream. These rules only apply to a surface water body that is identified as a public water supply and which is the sole-source of supply of a public water supply system, exclusive of emergency water connections. 17 TCEQ staff members working in the source water protection program maintain a list of each sole-source surface drinking water supply. The requirements for CAFO registrations were also amended by the TCEQ to require documentation showing whether or not any part of any pen, lot, pond, or other type of control or retention facility or structure of the CAFO is proposed to be located within the protection zone of a sole-source surface drinking water supply. 18 Restrictions on CAFOs Located Within the Bosque Watershed. The on going legal and political fight between dairies located in the Bosque watershed and downstream users of water, particularly the City of Waco, resulted in additional legislative restrictions on animal feeding operations, including CAFOs, which are used for dairy purposes in that region. The subject legislation, which amended Chapter 26 of the Water Code to add a new Subchapter L, restricts the type of authorizations for dairy CAFOs in the Bosque River watershed such that any new dairy CAFO, or an increase in the number of animals confined in an existing operation, may be authorized only by a new or amended individual permit. 19 Also, the legislation places restrictions on land application of manure within the watershed. Further, the legislation prohibits the TCEQ from issuing a general permit which would authorize the discharge of agricultural waste into or adjacent to waters in the state from an animal feeding operation to waters located within the Bosque watershed (or other major sole-source impairment zone ). 20 CAFO Permitting: Collins v. TNRCC. In Collins v. Texas Natural Resource Conservation Commission, the Third Court of Appeals upheld the Commission s denial of a hearing request made by a nonadjoining property owner, and found the Commission s process for evaluating hearing requests, by persons who claimed to be affected, satisfied procedural due process requirements. 21 The case involved a poultry operation which applied to the TCEQ for an individual TPDES permit to change from a dry waste management system to a system which generated wastewater to be stored in lined lagoons and irrigated onto crop land. A nearby farm operator protested the application and requested a contested case hearing. After briefing by the parties, and a limited hearing before the State Office of Administrative Hearings, the Commission denied the protestant s hearing request. Construing of the Water Code, as it existed before the statute s amendment in 1999, the Court found that the Commission s determination as to the validity of the hearing request was supported by substantial evidence. The Court also rejected the protestant s claim that he was denied due process. The Court found that the issuance of a permit in itself does not deprive a neighboring land owner of any concrete liberty or property interest. The Court noted that the Commission s rules seek to protect such interests, for example the rules expressly provide that the issuance of a permit does not authorize any injury to persons or property or invasion TEX. ADMIN. CODE (37) TEX. ADMIN. CODE (c)(15) 19 Water Code (a) 20 Water Code (d) 21 Collins v. Texas Natural Resource Conservation Commission, 94 S.W.3d 876 (Tex. App. Austin 2002, no pet.) 5

6 of any other property rights. The Court further held that even if a private property interest was at issue, due process never requires all the trial-like procedures of a statutory contested case hearing. The Court of Appeals affirmed the judgment of the trial court which upheld the Commission s order denying the protestant s request for a contested case hearing. 22 Clean Water Act - Jurisdictional Issues As mentioned in the CAFO discussion, Clean Water Act jurisdiction is more limited than the reach of Chapter 26 of the Texas Water Code. Hence, some operations which require a state permit might not require a NPDES discharge permit. The jurisdictional reach of the Clean Water Act has recently been narrowed by the U.S. Supreme Court. In Solid Waste Agency of Northern Cook County v. U.S. Army Corps of Engineers, 121 S.Ct. 675, 531 U.S. 159, 148 L.Ed.2d 576 (2001) (hereafter SWANCC ), the U. S. Supreme Court held that the Army Corps of Engineers application of the Migratory Bird Rule to assert Clean Water Act jurisdiction over a proposed landfill to be located in an abandoned sand and gravel pit (which constituted non-navigable isolated intrastate waters) exceeded the authority granted by Congress under Section 404(a) of the Clean Water Act. The Corps adopted the Migratory Bird Rule in 1986 in an attempt to clarify the reach of its jurisdiction and stated that Section 404(a) extends to intrastate waters: a. which are or would be used as habitat by birds protected by Migratory Bird Treaties; or b. which are or would be used as habitat by other migratory birds which cross state lines; or c. which are or would be used as habitat for endangered species; or d. used to irrigate crops sold in intrastate commerce. 51 Fed. Reg The SWANCC holding contrasts with the Court s holding in United States v. Riverside Bayview Homes, Inc., 474 U.S. 121, 106 S.Ct. 455, 88 L.Ed.2d 419 (1985) in which the Court held that the Corps had Section 404(a) jurisdiction over wetlands that actually abutted on a navigable water way. Discharge of Pollutant Interbasin Transfer of Waters Whether the mixing of raw water from different river basins or water bodies requires a NPDES permit has been the subject of new case law. In Catskill Mountains Chapter of Trout Unlimited, Inc. v. City of New York, 273 F.3d 481, (2nd Cir. 2001) on remand 207 F.Supp. 2d 3, the Second Circuit found that a NPDES permit was required. The case involved the transportation of raw water from a reservoir to creek using a manmade tunnel. The Court found that a NPDES permit was required because the conveyance of suspended sediment through a tunnel into a creek constituted the addition of a pollutant from a point source to navigable water. The Court reviewed several policy statements made by EPA where the agency took the position that raw waters would not be considered discharges and thus NPDES permits would not be required. To support its holding, the Court noted that water was artificially diverted from its natural course and traveled several miles through a man-made tunnel to a body of water utterly unrelated to the originating reservoir and outside its water shed. 22 Collins v. Texas Natural Resource Conservation Commission, 94 S.W.3d 876, 885 (Tex. App. Austin 2002, no pet.) 6

7 In Dubois v. U.S. Department of Agriculture, 102 F.3d 1273 (1st Cir. 1996) cert. denied, Loon Mountain Recreation Corp. v. Dubois, 117 S.Ct. 2510, 521 U.S (1997), the First Circuit held that a NPDES permit was required for the proposed transfer of water from a river through pipes to a pond for use by a ski facility s snow making equipment because of transfer of pollutants from the river to the pond. In the case, the Court found that the source of the river water was more polluted than the receiving pond and emphasized that water could not naturally flow from the river to the pond. In Froebel v. Meyer, 217 F.3d 928 (7th Cir. 2000), cert. denied, 121 S.Ct. 769, 531 U.S (2001) the Seventh Circuit held that a county was not required to obtain a NPDES permit for discharge of pollutants merely based upon the county s ownership of land from which an abandoned dam had been removed. The removal of the dam resulted in ongoing movement of silt and sediment down stream which affected fish and habitat. The Court found that the failure to act by the county to prevent the flow of sediment did not violate Clean Water Act, because the former dam and portion of river channel impounded were not a point source, as the Act required a point source to be distinct from navigable water itself. Because the U.S. Supreme Court has granted certiorari the case to watch is Miccosukee Tribe of Indians of Florida v. South Florida Water Management District, 280 F.3d 1364 (11th Cir. 2002), cert. granted. The case arose out of a citizen suit under the Clean Water Act alleging that a water district was violating the Act by discharging pollutants by pumping canal water into a separate water conservation area. The canal water contained higher levels of phosphorus than the amounts naturally occurring in the water conservation area. The issue in the case turns on whether the pumping of already polluted water constitutes an addition of pollutants to navigable waters from a point source. The Eleventh Circuit found that without the operation of the pump station, the polluted waters from the canal would not normally flow into the water conservation area, and therefore the pump station was the cause-in-fact of the addition of pollutants to the water conservation area, and therefore was subject to NPDES permit requirements. The Court however, found that the District Court abused its discretion by enjoining the water district from operating the pump station, given that the cessation of operation of the pump station would cause substantial flooding in the surrounding county and would cause damage to and displacement of a significant number of people. The Ninth Circuit recently addressed whether the mixing of unaltered groundwater with surface waters could occur without a NPDES permit, in the review of a citizen suit which challenged the discharge of produced waters resulting from coal bed methane extraction activities. Northern Plains Research Council v. Fidelity Exploration and Development Company, 325 F.3d 1155 (9th Cir. 2003). The Ninth Circuit found that the receiving waters were altered by the high salinity, TDS, and other pollutants in the produced groundwater and dismissed arguments that such pollution was not man induced because the discharger did not add chemicals or pollutants to the groundwater prior to discharge. The Ninth Circuit also found unpersuasive arguments that EPA s approval of delegation of the NPDES permit program to the State of Montana and Montana s statutory exemption of such discharges together exempted the operation from the need to obtain a permit. The Court found that neither EPA nor Montana have authority to create such an exemption from the Clean Water Act, and that the Supremacy Clause of the U.S. Constitution prohibits state law from contradicting a federal statute. 7

8 Clean Water Act Pollutants Shellfish and Aquaculture In Association to Protect Hammersley, Elde and Totten Inlets v. Taylor Resources, Inc., 299 F.3d 1007 (9th Cir. 2002), the Ninth Circuit addressed the question of whether mussel shells, mussel feces and other biological materials emitted from mussels grown on harvesting rafts, and thereby entering the waters of Puget Sound, constitute the discharge of pollutants from a point source without a permit in violation of the Clean Water Act. Once again, the case arose as a citizen suit. The state agency charged with administering the NPDES permit program determined that the mussel growing operation did not require a permit. Although mussel shells, mussel feces and other natural byproducts of live mussels might be considered biological materials, subject to the Act, the Ninth Circuit held that those materials were not the type of materials intended to be classified as pollutants. The Court found that the mussel shells and byproducts from living mussels are not biological materials under the Act because the materials come from the natural growth and development of the mussels and not from a transformative human process. In contrast, the court in U.S. Public Interest Research Group v. Atlantic Salmon of Maine, L.L.C., 215 F.Supp. 2d 239 (D.ME. 2002), found that a fish operation required a permit. In the case, salmon farm operators offshore net pens were determined to be a concentrated aquatic animal production facility and thus were point sources within the meaning of Clean Water Act. Further, the salmon pens added pollutants to the water from such circumstances as: escaping non-native salmon and the release of copper and various chemicals and feed placed into the water by the operators. Clean Water Act Agriculture Issues In a controversial decision, with a strongly dissenting judge, which was affirmed per curiam by an equally divided Supreme Court, 23 the Ninth Circuit held that deep plowing of farmland, including areas of wetlands, using bulldozers and tractors (characterized as deep ripping by the Court), constituted an illegal discharge of pollutants without a permit. Borden Ranch Partnership v. U.S. Army Corps of Engineers, 261 F.3d 810 (9th Cir. 2001) cert. granted 122 S.Ct. 2355, 153 L.Ed.2d 178, affirmed 123 S.Ct. 599 (2002). The Ninth Circuit s decision required a number of less than obvious conclusions, such as the finding that a farm plow met the statutory definition of a point source e.g. any discernible, confined, and discrete conveyance. In so finding, the Court noted that the statutory definition of point source was intended to be extremely broad and cited another decision, Avoyelles Sportsmens s League, Inc. v. Marsh, 715 F.2d 897, 922 (5 th Cir. 1983), which likewise found that bulldozers and backhoes can constitute point sources. The Court also concluded that the deep ripping constituted the addition of a pollutant to the wetlands, despite the fact that the subject method of plowing merely moved around and re-deposited existing soil and did not involve the introduction of new material into the wetlands. In Community Association for Restoration of the Environment v. Henry Bosma Dairy, 305 F.3d 943 (9th Cir. 2002) the Ninth Circuit affirmed the trial court s finding of Clean Water Act violations against two dairy operations. This case originated as a citizen suit under the Clean Water Act against two dairies located in Washington State, each of which had a chronic history of wastewater discharges and over-application of wastewater and manure onto crop land. In a novel interpretation of the term point source, the Court found that a field where manure was stored and related ditches were point sources given they were part of a concentrated animal feeding operation. The finding appears to be based upon clear evidence that there was over-application of manure containing wastewater onto the fields, causing the saturated fields to discharge into a canal which empties into the Yakima River. 23 At the Supreme Court, one Justice (Kennedy) took no part in the consideration of the case. 537 U.S. 99, 123 S.Ct. 599 (2002). 8

9 Even the Ninth Circuit declined to go so far as to attempt to regulate grazing cattle under the Clean Water Act. In Oregon National Desert Association v. Dombeck, 172 F.3d 1092 (9th Cir. 1998) cert. denied, S.Ct. 397, 528 U.S. 964, the Ninth Circuit reversed a trial court decision which found that grazing cattle caused discharges which were subject to the Act. The decision turned upon whether the term discharge in Section 401 of the Clean Water Act refers to discharges from non-point sources in addition to point sources. The Ninth Circuit found that the word discharge is consistently used in the Act to refer to point sources and in contrast non-point source pollution is referred to in the Act by the term runoff. In summary, the Ninth Circuit found that the Forest Service s grant of a cattle grazing permit in a national forest was not subject to Clean Water Act permitting requirements, given that grazing activities were non-point source activities. In another case with implications for agriculture, Pronsolino v. Nastri, the U.S. Supreme Court recently declined to review the Ninth Circuit s decision which had rejected the claim that a water body impaired solely by non-point source pollution should not be listed as impaired under Clean Water Act 303d. Pronsolino v. Nastri, 291 F.3d 1123 (9 th Cir. 2002), cert. denied, 123 S.Ct (2003). The subject water body was impaired by sediment and had no point source discharges, rather the river s impairment was caused by various non-point sources such as timber harvesting and erosion from road and trail crossings. The decision clears the way for EPA to now proceed with developing a TMDL for the subject river, and opens to door to Section 303d listings for other water bodies impaired solely by non-point sources. Clean Water Act Spraying of Pesticides Does the spraying of pesticides, which may fall or drift into waters of the U.S., require a NPDES discharge permit even if the spraying is performed in compliance with the pesticide s FIFRA label directions? In Headwaters, Inc. v. Talent Irrigation District, 243 F.3d 526 (9th Cir. 2001) the U.S. Court of Appeals for the Ninth Circuit held that an applicator of herbicides was required to obtain a NPDES permit for such application, notwithstanding the applicator s compliance with FIFRA. The Ninth Circuit justified its decision by finding that while FIFRA establishes a nationally uniform labeling system for pesticides only the Clean Water Act can consider the effects of pesticide spraying on local environmental conditions. When faced with the same question, the Second Circuit vacated and remanded a District Court decision which had granted summary judgment against plaintiffs in a citizen suit alleging that the Town of Amherst violated the Clean Water Act by failing to obtain a NPDES permit. Altman v. Town of Amherst, New York, 47 Fed. Appx. 62, 2002 W.L (2nd Cir. 2002) (not designated for publication). The Second Circuit was dissatisfied with the District Court s development of the record in the case and found that the court had unnecessarily curtailed or foreclosed the discovery sought by plaintiffs. The Court was also unhappy with the lack of guidance from EPA, which has jurisdiction over both FIFRA and the NPDES program, and stated that Participation by the EPA in this litigation in any way that permits articulation of the EPA s interpretation of the law in this situation would be of great assistance to the courts. In response to the Second Circuit s complaint as to a lack of clear interpretation of whether pesticide spraying requires NPDES permitting, the U.S. EPA issued its Interim Statement and Guidance on Discharge Permits Under the Clean Water Act for Pesticides Regulated by FIFRA on July 15, 2003 (the Interim Guidance ). The Interim Guidance provides that, until such time as EPA issues its final guidance, applications of pesticides to waters of the U. S. in compliance with FIFRA do not require a NPDES permit, in the following two circumstances: 9

10 1) The application of pesticides directly to waters of the United States in order to control pests. Examples of such applications include applications to control mosquito larvae or aquatic weeds that are present in the waters of the United States. 2) The application of pesticides to control pests that are present over waters of the United States that results in a portion of the pesticides being deposited to waters of the United States; for example, when insecticides are aerially applied to a forest canopy where waters of the United States may be present below the canopy or when insecticides are applied over water for control of adult mosquitos. The EPA further made it clear that it does not issue NPDES permits solely for the direct application of a pesticide to target a pest that is present in or over a water of the United States, nor has it ever stated in any general policy or guidance that a NPDES permit is required for such applications. EPA further stated that it does not believe that pesticides applied consistent with FIFRA are chemical wastes or biological materials under the Clean Water Act. The Interim Guidance makes clear that EPA intends to seek public comment on the agency s position, and will not finalize that position until it reviews all such comments. TCEQ Authority to Issue Water Quality General Permits One tool the TCEQ may use to authorize activities which require permitting under the Clean Water Act is the agency s authority to issue general permits. The TCEQ s authority to issue general permits was broadened in an amendment to Texas Water Code enacted by the 77th Legislature effective September 1, The Commission s general permit authority is described in statute as follows: (a) The commission may issue a general permit to authorize the discharge of waste into or adjacent to waters in the state by category of dischargers in a particular geographical area of the state or in the entire state if the discharges in the category discharge storm water or: (1) engage in the same or substantially similar types of operations; (2) discharge the same types of waste; (3) are subject to the same requirements regarding effluent limitations or operating conditions; (4) are subject to the same or similar monitoring requirements; and (5) are, in the commission s opinion, more appropriately regulated under a general permit than under individual permits based on commission findings that: (A) the general permit has been drafted to assure that it can be readily enforced and that the commission can adequately monitor compliance with the terms of the general permit; and 10

11 (B) the category of discharges covered by the general permit will not include a discharge of pollutants that will cause significant adverse effects to water quality. 24 The TCEQ issues both TPDES general permits, which authorize activity pursuant to both the federal Clean Water Act and the Texas Water Code, and also TCEQ general permits. The TCEQ general permits are only applicable to discharges adjacent to waters in the state and do not involve federal Clean Water Act permitting. Prior to receiving authority for general permits, under Texas Water Code , the Commission was granted authority to issue permits-by-r ule and has done so for those activities described in 30 Texas Administrative Code Chapter 321, which include the following types of activity: Boat Sewage Disposal; Animal Feeding Operations; Meat Processing; Sand and Gravel Washing; Surface Mining and Reclamation; Small Shrimp Packers; Hydrostatic Test Discharges; Treated Petroleum Substances; Concrete Plants; Motor Vehicle Cleaning Facilities; Petroleum Bulk Stations and Terminals; Livestock Trailer Cleaning; and Aquaculture Production Facilities. The Commission s wastewater general permits currently include permits authorizing discharges from concrete production facilities (TPDES General Permit No. TXG110000); discharges from petroleum bulk stations and terminals (TPDES General Permit No. TXG340000); discharges contaminated with petroleum fuel or petroleum substances (TPDES General Permit No. TXG830000). Additionally, the Commission has issued the livestock manure compost operations general permit, a state only permit (TCEQ General Permit No. WQG200000). The livestock manure composting general permit would apply to operations which dispose of wastewater from such operations by either irrigation or evaporation. Such operations which recycle processed wastewater, and do not discharge to waters of the state, do not need coverage under the general permit. The TCEQ has also adopted general permits authorizing the management of storm water. Following delegation of the NPDES program to the State on September 14, 1998, the memorandum of agreement between EPA and Texas provided for the State to assume the role of storm water permitting in conjunction with the expiration of federal storm water permits. Currently, the TCEQ administers TPDES storm water permits for industrial activity, construction activity, and municipal separate storm sewer systems ( MS4s ). New Responsibilities for Attorneys Advising SEC Regulated Companies Imposed by the Sarbanes-Oxley Act of As a diversion from the discussion of water quality permit issues, we now turn to a brief discussion of the Sarbanes-Oxley Act ( SOA ) 26 and rules recently adopted by the Securities and Exchange Commission 24 Water Code This portion of the paper is taken, with permission, from a much longer and more detailed paper about the Sarbanes Oxley Act which was written by my law partner, Byron Egan, who is a prolific writer and certainly far more knowledgeable about the subject than I. Any person interested in more detail on the SOA should read Byron s article entitled Sarbanes Oxley Overview. The article was presented at the State Bar of Texas 2 nd Annual Advanced In-House Counsel Course, and is available on the Jackson Walker Website at 26 Sarbanes Oxley Act of 2002, Pub. L ; Signed by President Bush on July 30,

12 ( SEC ) which impose new ethical and reporting obligations on attorneys who work for, or represent, any company which has publicly traded equity or debt (an issuer ). While much of the SOA seeks to address corporate fraud and internal audit issues, the new ethical rules are of interest to environmental attorneys because the SEC asserts that the rules take precedent over conflicting state ethical rules. Environmental attorneys are often called upon to advise corporations on regulatory compliance matters, and some of those compliance matters may be of such significance or magnitude as to rise to the level of a material violation and trigger new reporting obligations under the SOA. Enhanced Attorney Responsibilities. The SOA ( 307) mandates that the SEC shall adopt rules of professional responsibility for attorneys representing public companies before the SEC, including: (1) requiring an attorney to report evidence of a material violation of securities law or breach of fiduciary duty to the chief legal officer or the equivalent ( CLO ), if the issuer has a CLO, or to both the CLO and the CEO, of the company; and (2) if corporate executives do not respond appropriately, requiring the attorney to report to the board of directors or an appropriate committee thereof. The SEC complied with the SOA 307 mandate by adopting the rules implementing provisions of SOA 307 that prescribe minimum standards of professional conduct for attorneys appearing and practicing before the SEC in any way in the representation of issuers, which were published in SEC Release No (January 29, 2003), titled Implementation of Standards of Professional Conduct for Attorneys, and which can be found at (the SOA 307 Release ). These rules adopted under SOA 307 (the SOA 307 Rules ) constitute a new Part 205 to 17 CFR, Standards of Professional Conduct for Attorneys Appearing and Practicing before the Commission, and became effective on August 5, Generally, the SOA 307 Rules require that, in the event that an attorney has credible evidence based upon which it would be unreasonable, under the circumstances, for a prudent and competent attorney not to conclude that it is reasonably likely that a material violation of any U.S. law or fiduciary duty has occurred, is on going, or is about to occur, the attorney has a duty to seek to remedy the problem by reporting up the ladder within the issuer. This standard, developed from the SEC s attempt to make objective rather than subjective the test of when a lawyer must report a violation, has a lower threshold than a more likely than not standard. An attorney s duty is not confined to matters as to which the attorney has formed a legal conclusion that there has been a material violation. Relationship to State Disciplinary Rules. The SOA 307 Rules purport to set forth minimum standards of professional conduct for attorneys appearing and practicing before the SEC in the representation of an issuer. SOA 307 standards are intended to supplement applicable standards of any jurisdiction where an attorney is admitted or practices and are not intended to limit the ability of any jurisdiction to impose additional obligations on an attorney not inconsistent with the application of SOA 307 Rules. Where the standards of a state or other U.S. jurisdiction where an attorney is admitted or practices conflict with SOA 307 Rules, SOA 307 Rules provide that they shall govern. Attorneys Covered. The SOA 307 Rules apply to all attorneys, whether in-house counsel or outside counsel and those in foreign jurisdictions, appearing and practicing before the SEC. The term appearing and practicing before the SEC is broadly defined, to include for example attorneys who provide legal advice to an publicly traded company as to whether information or a statement, opinion, or other writing is required under the U.S. securities laws to be filed with or submitted to, or incorporated into any document that will be filed with or submitted to, the SEC. The SEC intends that the issue of whether an attorney-client relationship exists for purposes of the SOA 307 Rules will be a federal question and, in general, will turn on the expectations and understandings between the attorney and the issuer. Thus, whether the provision of legal services under particular circumstances would or would not establish an attorney-client relationship under the state laws or ethics codes of the state where the attorney practices or is admitted may be relevant to, but will not be controlling on, the issue under the SOA 307 Rules. 12

13 Who is the Client? The SOA 307 Rules affirmatively state that an attorney representing an issuer represents the issuer as an entity, rather than the officers or others with whom the attorney interacts in the course of that representation. The attorney owes his or her professional and ethical duties to the issuer as an organization. 27 What Evidence Triggers Reporting Duty? The SOA 307 reporting duties are triggered when an attorney has evidence of a material violation, which is defined to mean credible evidence, based upon which it would be unreasonable, under the circumstances, for a prudent and competent attorney not to conclude that it is reasonably likely that a material violation has occurred, is ongoing, or is about to occur. Material violation in turn is defined to mean a material violation of an applicable U.S. federal or state securities law, a material breach of fiduciary duty arising under U.S. federal or state law, or a similar material violation of any U.S. federal or state law. The SOA 307 Release comments that SOA 307 Rules do not contain a separate definition of material because that term has a well-established meaning under the federal securities laws and the [SEC] intends for that meaning to apply under the SOA 307 Rules. 28 The SOA 307 Release, however, does comment that material violations must arise under U.S. law (federal or state) and do not include violations of foreign laws. Breach of fiduciary duty under the SOA 307 Rules refers to any breach of fiduciary or similar duty to the issuer recognized under an applicable federal or state statute or at common law, including but not limited to misfeasance, nonfeasance, abdication of duty, abuse of trust and approval of unlawful transactions. Duty to Report Evidence of a Material Violation. If an attorney, appearing and practicing before the SEC in the representation of an issuer, 29 becomes aware of evidence of a material violation by the issuer or by any officer, director, employee or agent of the issuer, the SOA 307 Rules require the attorney to report 30 the evidence to the issuer s CLO (if the issuer has a CLO) or to both the issuer s CLO and its CEO forthwith. By communicating such information to the issuer s officers or directors, an attorney does not reveal client confidences or secrets or privileged or otherwise protected information related to the attorney's representation of an issuer. The CLO is then obligated to cause such inquiry into the evidence of a material violation as he or she reasonably believes 31 is appropriate to determine whether the material violation described in the report has 27 Tex. R. Disc. P provides that [a] lawyer employed or retained by an organization represents the entity rather than the individuals to whom the lawyer reports in the ordinary course of working relationships. 28 The SOA 307 Release cites Basic, Inc. v. Levinson, 485 U.S. 224, (1988); and TCS Indus. v. Northway, Inc., 426 U.S. 438 (1976) for the generally accepted definition of material. Materiality is defined in those cases as follows: An omitted fact is material if there is a substantial likelihood that a reasonable shareholder would consider it important in deciding how to vote... It does not require proof of a substantial likelihood that disclosure of the omitted fact would have caused the reasonable investor to change his vote. What the standard does contemplate is a showing of a substantial likelihood that, under all the circumstances, the omitted fact would have assumed actual significance in the deliberations of the reasonable shareholder. Put another way, there must be a substantial likelihood that the disclosure of the omitted fact would have been viewed by the reasonable investor as having significantly altered the total mix of information made available. TSC Industries at 449, expressly adopted in Basic, Inc. at The SOA 307 Rules define in the representation of an issuer to mean providing legal services as an attorney for an issuer, regardless of whether the attorney is employed or retained by the issuer. 30 The SOA 307 Rules define report to mean to make known to directly, either in person, by telephone, by , electronically, or in writing. 31 The SOA 307 Rules provide that reasonably believes to mean that an attorney believes the matter in question and that the circumstances are such that the belief is not unreasonable, and that reasonable or reasonably denote, with respect to the actions of an attorney, conduct that would not be unreasonable for a prudent and competent attorney. 13

14 occurred, is ongoing, or is about to occur. If the CLO determines no material violation has occurred, is ongoing, or is about to occur, he or she shall notify the reporting attorney and advise the reporting attorney of the basis for such determination. Unless the CLO reasonably believes that no material violation has occurred, is ongoing, or is about to occur, he or she shall take all reasonable steps to cause the issuer to adopt an appropriate response, 32 and shall advise the reporting attorney thereof. In lieu of causing such an inquiry a CLO may refer a report of evidence of a material violation to a qualified legal compliance committee ( QLCC ) if the issuer has duly established a QLCC prior to the report of evidence of a material violation. Unless an attorney who has made the report reasonably believes that the CLO or CEO has provided an appropriate response within a reasonable time, the attorney shall report the evidence of a material violation to: (i) the issuer s audit committee, (ii) another committee consisting solely of independent directors, or (iii) the board of directors. If an attorney reasonably believes that it would be futile to report evidence of a material violation to the issuer s CLO and CEO, the attorney may bypass them and report the evidence to the board or an appropriate committee. An attorney who receives what he or she reasonably believes is an appropriate and timely response to a report he or she has made need do nothing more under the SOA 307 Rules with respect to his or her report. An attorney who does not reasonably believe that the issuer has made an appropriate response within a reasonable time to the report or reports made shall explain the reason behind his or her belief to the CLO, the CEO, and the directors to whom the attorney reported the evidence of a material violation. An attorney formerly employed or retained by an issuer who has reported evidence of a material violation under the SOA 307 Rules and reasonably believes that he or she has been discharged for so doing may notify the issuer s board of directors or any committee thereof that he or she believes that he or she has been discharged for reporting evidence of a material violation. Discharging an attorney/employee for reporting under the SOA 307 Rules would violate the whistleblower protections afforded by SOA 806. Alternative Reporting Procedures For An Issuer That Has Established A QLCC. If an attorney, appearing and practicing before the SEC in the representation of an issuer, becomes aware of evidence of a material violation by the issuer or by any officer, director, employee, or agent of the issuer, the attorney may, as an alternative to the preceding reporting requirements, report such evidence directly to a QLCC, if the issuer has formed such a committee. An attorney who reports evidence of a material violation to a QLCC has satisfied his or her obligation to report such evidence and is not required to assess the issuer s response to the reported evidence of a material violation. 32 Appropriate response is defined by the SOA 307 Rules as a response to an attorney regarding reported evidence of a material violation as a result of which the attorney reasonably believes that: (1) no material violation has occurred, is ongoing, or is about to occur; (2) the issuer has, as necessary, adopted appropriate remedial measures, including appropriate steps or sanctions to stop any material violations that are ongoing, to prevent any material violation that has yet to occur, and to remedy or otherwise appropriately address any material violation that has already occurred and to minimize the likelihood of its recurrence; or (3) the issuer, with the consent of the issuer s board of directors, an appropriate committee thereof or a QLCC, has retained or directed an attorney to review the reported evidence of a material violation and either (x) has substantially implemented any remedial recommendations made by such attorney after a reasonable investigation and evaluation of the reported evidence or (y) has been advised that such attorney may, consistent with his or her professional obligations, assert a colorable defense on behalf of the issuer (or the issuer s officer, director, employee, or agent, as the case may be) in any investigation or judicial or administrative proceeding relating to the reported evidence of a material violation. 14