United Affiliates Corporation v. United States ( 2019 )

In the United States Court of Federal Claims
No. 17-67
(Filed: May 29, 2019)
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UNITED AFFILIATES CORPORATION *
AND MINGO LOGAN COAL LLC, *
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Fifth Amendment Taking;
Plaintiffs, *
Categorical Taking; Regulatory
*
Taking; Clean Water Act; Motion
v. *
to Dismiss for Failure to State a
*
Claim; Rule 12(b)(6); Rule 9(i).
THE UNITED STATES, *
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Defendant. *
*
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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.
OPINION AND ORDER
WHEELER, Judge.
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.
Background
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 the
1
The EPA can deem an area “waters of the United States” under the Clean Water Act without the location
being a waterway in the traditional sense. For example, areas that are dry for most of the year, but which
carry storm runoff or operate as a seasonal stream can qualify. Id. ¶ 18.
2
In this Opinion, the Court refers to the two waterways at issue as “streams.” This linguistic choice does
not reflect an evaluation of the legal nature of these areas, but rather is for ease of reference.
2
record, 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
Discussion
A. Standard of Review
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).
B. Plaintiffs’ Fifth Amendment Takings Claims
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. “First, the court determines whether the
claimant has identified a cognizable Fifth Amendment property interest that is asserted to
3
This case was stayed from March 28, 2017, to October 29, 2018 while the parties explored the possibility
of resolving Plaintiffs’ claims. See Dkt. Nos. 11, 29.
4
At oral argument, the Court gave Plaintiffs leave to file a supplemental brief in response to authority that
the Government cited during oral argument that was not included in its brief. Plaintiffs filed that response
on April 16, 2019. See Dkt. No. 16.
3
be the subject of the taking. Second, if the court concludes that a cognizable property
interest exists, it determines whether that property interest was ‘taken.’” 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.
1. Property 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
a. Rule 9(i)
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) (“At the pleadings stage . . . , there is no need for a plaintiff to separately identify
each type or item of personal property” alleged to have been taken by the Government.).
b. Plaintiffs’ Specific Property Rights Alleged in the Complaint
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.”
5
Defendant also argues that Plaintiffs’ complaint should be dismissed because Plaintiffs cannot, as a matter
of law, hold a compensable property interest in a Government-issued permit. Plaintiffs “do not assert any
property right in the permit itself.” Pl. Response at 8. Accordingly, the Court will not engage in this
analysis.
4
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.
i. Mingo’s Property Interests
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 EPA rescinded the permit, thus allegedly depriving Mingo of the right to use its
property as desired. Id. ¶ 71. The Government asserts that these allegations do not show
any interest in the hollows where the spoil would be disposed.
The Court disagrees. In submitting its section 404 permit application, 33 C.F.R. §
325.1 required Mingo to affirm its ownership interest in the hollows. See § 325.1(d)(8)
(“The signature of the applicant or the agent will be an affirmation that the applicant
possesses or will possess the requisite property interest to undertake the activity proposed
in the application . . . .”). When faced with a motion to dismiss, courts may consider such
information outside the complaint, including “matters incorporated by reference or integral
to the claim, items subject to judicial notice, and matters of public record.” Dimare Fresh,
Inc. v. United States, 808 F.3d 1301, 1306 (Fed. Cir. 2015) (citations omitted). The permit
and circumstances surrounding its withdrawal are integral to Plaintiffs’ claims.
Accordingly, the permit acts as an assertion of Mingo’s property ownership over the
hollows wherein spoil would be deposited. The allegations in the complaint, taken with
Mingo’s affirmation made in its application, are, therefore, enough to push Mingo over the
pleading hurdle.
ii. United’s Property Interests
Plaintiffs allege that “United owns the land and most of the coal that can be mined
in the area of West Virginia known as Spruce No. 1,” and that “United is entitled to receive
certain tonnage royalties” from Mingo pursuant to the lease agreement whereby United
permitted Mingo to mine on United’s land. Compl. ¶ 1, 22.
United owns the land to be mined and the rights to the underlying minerals. United
has an interest in the hollows where spoil would be disposed to the extent that it holds a
royalty fee arrangement from Mingo’s mining operations. There are a variety of ways in
which a plaintiff can hold a property interest cognizable under the Fifth Amendment. See
5
United States v. Gen. Motors Corp., 323 U.S. 373, 378 (1945) (the takings clause addresses
“every sort of interest the citizen may possess.”). Accordingly, United holds an interest in
both the land to be mined and the spoil disposal site.
In sum, Plaintiffs have identified their ownership rights with enough specificity.
United owns the property to be mined and the mineral rights to coal, as well as an interest
in the hollows where spoil would be disposed of through its royalty fee arrangement with
Mingo. Mingo leases the mining land and mineral rights from United and holds an interest
in the disposal site. Accepting the allegations as true, Plaintiffs present facts “plausibly
suggesting” property interests in these lands that are cognizable under the Fifth
Amendment. Twombly, 550 U.S. at 557.
c. West Virginia Property Rights
The Constitution “neither creates nor defines the scope of property interests
compensable under the Fifth Amendment.” Maritrans, Inc. v. United States, 342 F.3d
1344, 1352 (Fed. Cir. 2003) (citing Bd. of Regents of State Colls. v. Roth, 408 U.S. 564,
577 (1972)). Instead, courts look to ‘“existing rules and understandings’ and ‘background
principles’ derived from an independent source, such as state, federal, or common law” to
define the requisite property interest to establish a taking. Id. (citing Lucas v. S.C. Coastal
Council, 505 U.S. 1003, 1030 (1992)). “[C]onfiscatory regulations . . . must inhere in the
title itself, in the restrictions that background principles of the State's law of property and
nuisance already place upon land ownership.” Lucas, 505 U.S. at 1029. Accordingly, if
“background principles of nuisance and property law [] prohibit the uses [a landowner]
now intends in the circumstances in which the property is presently found,” then
governmental regulation of that use takes nothing from the owner. Id. at 1031–32.
i. The Pigeonroost and Oldhouse Streams
The Government asserts that even if the streams are on Plaintiffs’ property, the State
of West Virginia owns the underlying streambeds. See Def. Mot. at 15 n.3. Thus, Plaintiffs
cannot dispose of spoil therein because the streambeds are not Plaintiffs’ property. As
evidence that these areas are streams with streambeds belonging to the State, the
Government points to two sources: (1) the EPA’s determination that these areas are
“perennial” and “intermittent” streams, id. Ex. 1, and (2) a Southern District of West
Virginia case granting adjacent landowners a preliminary injunction enjoining Mingo’s
predecessor in interest from disposing spoil into the Pigeonroost stream pending issuance
of the appropriate permits. See Bragg v. Robertson, 54 F. Supp. 2d 635, 643 (S.D.W. Va.
1999). The court in Bragg found the Pigeonroost stream “to be of very good quality, with
clear running water, and containing many of the beneficial aquatic life.” Id.
Under West Virginia law, whether an area is a waterway subject to State control
turns on a navigability test: “whether the stream, in its natural and ordinary condition,
6
affords a channel for useful commerce.” Campbell Brown & Co. v. Elkins, 93 S.E.2d 248,
266 (W.Va 1956). If the Pigeonroost and Oldhouse streams do not meet this standard, then
the State cannot claim ownership over them. While Bragg noted the quality of the stream,
it is silent on this issue of navigability. Similarly, though the EPA designated these areas
as intermittent or perennial streams, that finding says nothing as to their status as waterways
under West Virginia law. Indeed, it appears that the EPA’s framework could be
considerably more inclusive than what is contemplated under West Virginia’s navigability
test. See Sackett v. EPA, 566 U.S. 120, 132 (2012) (Alito, J., concurring) (“Any piece of
land that is wet at least part of the year is in danger of being classified by EPA employees
as . . . covered by the [Clean Water Act].”).
Plaintiffs may use their land for their own economic benefit, which includes for
mining purposes. See Schooner Harbor Ventures, Inc. v. United States, 569 F.3d 1359,
1364 (Fed. Cir. 2009) (“The right to develop one’s land is clearly cognizable.”); Cienega
Gardens v. United States, 331 F.3d 1319, 1336 (Fed. Cir. 2003) (“[T]he right to mine . . .
[is] inherent in . . . ownership rights.”). Plaintiffs claim that the permit revocation prevents
them from mining, thus prohibiting them from using their land in an economically
beneficial way. See, e.g., Compl. ¶ 64; see also Chicago, Rock Island & Pac. R.R. Co. v.
United States, 284 U.S. 80, 96 (1931). While further factual development appears
necessary on this point, Plaintiffs have pleaded enough at this stage.
ii. Plaintiffs’ Use of the Streams
In the alternative, the Government claims that even if Plaintiffs own the streambeds,
Plaintiffs’ spoil disposal would bury the streams, thus violating the reasonable use doctrine.
See Def. Mot. at 9. That doctrine confines riparian landowners to use surface water only
to the extent that it does not disturb the waterway’s flow or impede the rights of
downstream owners. See Morris Assocs., Inc. v. Priddy, 383 S.E.2d 770, 773 (W. Va.
1989) (“Generally, under the rule of reasonable use, the landowner, in dealing with surface
water, is entitled to take only such steps as are reasonable, in light of all the circumstances
of relative advantage to the actor and disadvantage to the adjoining landowners, as well as
social utility.”).
The Government’s assertion is at odds with the allegations in the complaint. For
example, Plaintiffs assert that an Environmental Impact Study taken of the area indicated
that their anticipated project would “only contribute minimally to cumulative impacts on
surface water quality,” and that “a net gain of waters of the U.S. . . . would occur” in the
area. Compl. ¶ 36. Plaintiffs have alleged enough. The impact to downstream owners
requires further factual development.
7
2. Taking of Property
a. Count I
Plaintiffs declare that “[t]he EPA’s revocation of the permit constituted a categorical
taking under Kaiser Aetna v. United States, 444 U.S. 164 (1979).” Compl. ¶ 67. Plaintiffs’
choice of language leads to some confusion.
“A categorical takings occurs when regulations compel the property owner to suffer
a physical invasion of its property” or prohibit “all economically beneficial or productive
use.” Dimare Fresh, 808 F.3d at 1307 (citing Lucas, 505 U.S. at 1005). In the latter
situation, “[i]f, however, a regulation prohibits less than all economically beneficial use of
the land and causes at most a partial destruction of its value, the case does not come within
the Supreme Court's ‘categorical’ taking rule.” Fla. Rock Indus., Inc. v. United States, 18
F.3d 1560, 1565 (Fed. Cir. 1994). A “categorical taking” has, therefore, become a legally
significant term invoking the set of extraordinary circumstances first laid out in Lucas.
Plaintiffs do not allege that either of those two circumstances exist here. Instead,
they argue that Kaiser Aetna sets forth a “categorical rule” that when the Government
authorizes a particular use for land and significant costs are incurred in reliance on that
authorization, then the property owner acquires a right to use that property in the authorized
manner. Compl. ¶¶ 67-68. The Government’s refusal to allow the previously-authorized
use constitutes a taking. Id. ¶ 71. At oral argument, Plaintiffs clarified that indeed their
claim is not for a “categorical taking” as the term is defined, but rather is an attempt to
draw from Kaiser Aetna a rule regarding the impact of reliance on Government
representations and recovery on a takings claim. See Oral Arg. Tr. at 34:9-25 (“Your
Honor, with respect to terminology . . . we described a categorical rule . . . . It’s a categorical
rule because essentially what Kaiser focuses on is that whatever the nature of the reliance
interest engendered by the government action, that creates a property interest. And if the
Government takes that away, that becomes the denominator. So if you spend $100 million
in reliance on some government activity . . . you’re entitled to that recovery . . . even if you
have other value associated with the property elsewhere.”).
In Kaiser Aetna, the plaintiff leased private land on which sat a privately-owned
pond. Kaiser Aetna sought to develop the pond into a marina by dredging a lagoon to
connect the pond to a neighboring bay. Before beginning construction, Kaiser Aetna
sought the Government’s input, and the Government acquiesced to the project. Kaiser
Aetna then dredged the lagoon connecting the privately-owned pond to the bay, a navigable
water of the United States (i.e. property of the United States). See 444 U.S. at 177-180.
After Kaiser Aetna completed the project, the Government required Kaiser Aetna to open
its marina to the public because the property “had become a navigable water of the United
States.” Id. at 168. The Government declared that it need not compensate Kaiser Aetna
8
because the Government acted pursuant to its authority to exercise a public right of
navigation over interstate waters for which landowners need not be paid.
The Supreme Court found that the Government could not require Kaiser Aetna to
allow public access “without invoking its eminent domain power and paying just
compensation.” Id. at 180. The court’s result turned primarily on three facts: (1) Kaiser
Aetna made its large investment with the Government’s consent, (2) Kaiser Aetna had
made significant progress in its development project, and (3) the Government’s proposed
course of conduct would infringe on a “fundamental element” of Kaiser Aetna’s property
rights (there, its right to exclude). See id. at 179-81.
That case does not add to the list of limited and extraordinary situations wherein the
Government’s actions amount to a “categorical taking” as the term is defined in Lucas.
Accordingly, since Plaintiffs have not alleged facts that they have suffered a physical
invasion of their property or that their property has been deprived of all economically
beneficial or productive use, they have not stated a categorical takings claim.
However, the Court reads Kaiser Aetna as an application of the now familiar factors
used to determine whether a plaintiff’s economic injuries constitute a regulatory taking as
first outlined in Penn Cent. Transp. Co. v. City of N.Y., 438 U.S. 104, 124 (1978)
(discussed below). See id. at 175-76 (citing the “Penn Central” factors as guiding the
court’s analysis). Plaintiffs are welcome to rely on Kaiser Aetna to the extent that it
informs the Court’s analysis of whether a regulatory taking has occurred. Plaintiffs,
therefore, can test their legal theory based on Kaiser Aetna as laid out in Count I of their
complaint under Count II.
b. Count II
“[W]hile property may be regulated to a certain extent, if regulation goes too far it
will be recognized as a taking.” Penn. Coal Co. v. Mahon, 260 U.S. 393, 415 (1922).
There is no “set formula” for this analysis. Dimare Fresh, 808 F.3d at 1307 (citing
Connolly v. Pension Benefit Guar. Corp., 475 U.S. 211, 224 (1986)). Instead, courts
conduct a fact-based inquiry, which considers: (1) the character of the governmental action;
(2) the economic impact of the action on the claimant; and (3) the effects of the
governmental action on the reasonable investment-backed expectations of the claimants.
See Penn Cent., 438 U.S. at 124; see also Lingle v. Chevron U.S.A., Inc., 544 U.S. 528,
538-39 (2005). The Federal Circuit has recognized “that the denial of a section 404 permit
could amount to a taking of a cognizable property right as it deprives the landowner of a
right inherent in the land ownership . . . .” Hearts Bluff Game Ranch, Inc. v. United States,
669 F.3d 1326, 1330 (Fed. Cir. 2012).
After the EPA issued the section 404 permit to Mingo, Mingo allegedly invested
millions of dollars in developing its property to carry out operations that the permit
9
specifically authorized. Compl. ¶ 75. The EPA then withdrew the permit, a decision
which, according to Plaintiffs, was unprecedented and thus unforeseeable. Id. ¶ 76.
Plaintiffs assert that the result was to foreclose them from using their land for coal mining
operations and the deprivation “of tens of millions of dollars in economically beneficial or
productive use or value of the property.” Id. ¶ 74. The complaint therefore contains
allegations that the section 404 permit withdrawal deprived Plaintiffs from using their
property for coal mining. Plaintiffs have pleaded enough to state a regulatory takings claim
under the Penn Central framework.6
Conclusion
In conclusion, the Government’s Motion to Dismiss for failure to state a claim
pursuant to Rule 12(b)(6) is GRANTED as to both Plaintiffs on Count I and DENIED as
to both Plaintiffs on Count II. No costs.
The Court orders the parties to file a Joint Status Report within 30 days of the date
of this Opinion and Order proposing how they intend to proceed.
IT IS SO ORDERED.
s/ Thomas C. Wheeler
THOMAS C. WHEELER
Judge
6
The D.C. Circuit’s determination that the EPA’s permit revocation did not run afoul of the APA does not
necessarily mean that their action did not result in a compensable taking. Simply because the Government
had the authority to act does not mean that its action cannot go too far and violate Plaintiffs’ Fifth
Amendment rights.
10