Today the Supreme Court issued two decisions, described below, of interest to the business community.  

Massachusetts v. Environmental Protection Agency, No. 05-1120 (previously discussed in the June 26, 2006 Docket Report).  Section 202(a)(1) of the Clean Air Act directs the Administrator of the EPA to promulgate  “standards applicable to the emission of any air pollutant from any class or classes of new motor vehicles or motor vehicle engines, which in his judgment cause, or contribute to, air pollution which may reasonably be anticipated to endanger public health or welfare.”  42 U.S.C. § 7521(a)(1).  At issue in this case was whether Section 202(a)(1) gives the EPA authority to regulate greenhouse gases emitted by motor vehicles, and if so, whether the EPA should exercise that authority.  In administrative proceedings, the EPA denied its authority to do so, and found that it would decline the authority even if it existed.  Writing for the majority in a 5-4 decision, Justice Stevens found the EPA wrong on both accounts.

After determining that the petitioners did in fact have standing under the Constitution to dispute the EPA’s inaction, the Court addressed the merits.  As to whether the Clean Air Act applied at all, the Court found that the Act’s definition of “air pollutant”--extending to “any air pollution agent or combination of such agents, including any physical, chemical * * * substance or matter which is emitted into or otherwise enters the ambient air,” 42 U.S.C. § 7602(g)--is broad enough to cover greenhouse gases.  These gases are therefore subject to EPA regulation under Section 202(a)(1).  The Court found nothing in the treatment of greenhouse gases elsewhere by Congress to suggest that they should not be subject to regulation under the Clean Air Act, as the EPA had argued.

The Court also rejected the EPA’s decision to forgo regulation even if the statute permitted it.  Again the Court found the statutory text clear: The “judgment” referred to in Section 202(a)(1) relates only to whether the pollutants at issue are a possible menace to public health or welfare.  In declining to regulate pollutants under Section 202(a)(1), therefore, the EPA may at most find that it has insufficient information to determine whether they are indeed likely to pose such menace.  It may not decide to forego regulation on account of unrelated policy reasons, such as the Executive’s having taken steps to address greenhouse gas emissions that EPA regulation might disrupt.  Because this is precisely the justification the EPA had used, the Court found, the agency’s decision not to take any action was invalid.

The Court’s decision makes it very likely that the EPA will have to consider whether greenhouse gases should be regulated under the Section 202(a)(1).  Whether the EPA will decline to do so on a justified basis, and the scope of any regulation that will result if the EPA decides to act, remain to be seen.  Depending on the EPA’s response, the Court’s decision could affect companies with interests in the transportation or petrochemical markets.

Environmental Defense v. Duke Energy, No. 05-848 (previously discussed in the May 15, 2006 Docket Report).  In the 1970s, Congress amended the Clean Air Act to add two air pollution control schemes--the so-called New Source Performance Standards (NSPS) provisions and the Prevention of Significant Deterioration (PSD) provisions--both of which provide for regulatory review over “modified” sources of air pollution.  The NSPS provisions define “modification” as “any physical change in, or change in the method of operation of, a stationary source which increases the amount of any air pollutant emitted by such a source.”  42 U.S.C. § 7411(a).  The PSD provisions use the term “modification” “as defined in” the NSPS provisions.  Id. § 7479(2)(C).  Despite this statutory convergence, EPA regulations under the NSPS provisions measure emissions for “modification” purposes on an hourly basis, while regulations under the PSD provisions measure them on an annual basis.  The question in this case was whether the two sets of regulations should treat the statutory term “modification” identically.  The Court of Appeals found that identical treatment was required and on this basis interpreted the PSD regulations to apply on an hourly basis in an effort to conform them to their NSPS relatives.  Writing for a unanimous Court, Justice Souter found that the Court of Appeals had erred.

In reaching this conclusion, the Court acknowledged the principle that the same term should have the same meaning when it occurs in different places within a single statute.  The Court found, however, that “modification” is a term of sufficiently broad meaning to permit a range of permissible agency interpretations.  And as long as the agency chose a meaning within this range, it did not matter that it selected a different meaning for PSD purposes than it selected for NSPS purposes.  Because the Court of Appeals had based its analysis on the contrary assumption, the Court vacated the lower court’s decision.

The upshot of the Court’s opinion is that the Court of Appeals will have to apply the PSD regulations as written, and decide whether they are consistent with the statutory definition of the term “modification.”  If it upholds the PSD regulations after this inquiry, the decision is likely to require companies that are subject to the PSD regulations to obtain EPA approval in more instances in which they are contemplating changes to their plants because many modifications will increase annual plant emissions even if they don’t increase hourly plant emissions.

In the February 20, 2007, Decision Alert, we briefly described the Supreme Court’s latest punitive damages decision, Philip Morris USA v. Williams, in which Mayer Brown represented Philip Morris, the prevailing party. Attached is an article that Evan Tager--one of the lawyers who litigated Williams--recently published about the case, which explains the case and its implications in greater detail.