The Louisiana Court of Appeal for the First Circuit in Louisiana Environmental Action Network v. Welsh, 2016-0906 (La. App. 1 Cir. 6/14/17); 224 So. 3d 383, recently ruled that an order issued by the Commissioner of Conservation was overly broad, arbitrary and capricious.  Reversing the lower court’s ruling upholding the Commissioner’s order allowing construction of a new transfer station for oil and gas exploration and production waste, the First Circuit held that, despite the Commissioner’s broad authority over the State’s oil and gas resources, the order violated lawful procedure because it was beyond the scope of what was requested in the underlying application.

FAS Environmental Services, LLC (“FAS”) submitted an application to the Louisiana Department of Natural Resources seeking a permit to construct and maintain a new transfer station located in St. Mary Parish.  The proposed transfer station consisted of a truck unloading area with above ground storage tanks to receive and temporarily store energy and production waste.  The waste would later be transferred by pipeline to FAS’s existing disposal facility and then eventually injected into FAS’s disposal wells.  In the permit application, and during the later legal proceedings, FAS represented that the new transfer station would replace FAS’s existing station, which required the use of barges to transfer the waste from the station to the disposal facility.  The new station’s proposed location was about one and a half miles north of the existing transfer station and, due to the use of a pipeline, would eliminate the necessity of barging the waste.

After conducting a public hearing and receiving public comment, the Commissioner issued Conservation Order No. ENV 2015-03 CFT approving FAS’s application for the new transfer station.  Even though closure of FAS’s existing transfer station and relocation of its operations to the new transfer station were expressed in FAS’s application, the order did not condition the approval to construct the new station on the closure of the existing station.  Thereafter, several environmental groups filed suit in the 19^th JDC for East Baton Rouge Parish seeking judicial review of the order.  The district court upheld the order, and the plaintiffs appealed that holding to the First Circuit on four bases:

1. that the Commissioner violated statutory law by failing to consider conflicts with St. Martin Parish’s master plan before approving the order, which would move industrial activity through a residential area and affect nearby recreational and tourism resources;
2. that the Commissioner was arbitrary and capricious in approving the order when the record does not establish, as required by the Commissioner’s rules, that the containment wall surrounding the storage tanks will withstand the velocity of a 100–year flood;
3. that the Commissioner committed legal error in concluding that local zoning ordinances were preempted and therefore irrelevant to his decision; and
4. that the Commissioner was arbitrary and capricious in approving the order, which authorized FAS to operate a second transfer station without requiring FAS to close the first transfer station.

Focusing on the plaintiffs’ fourth argument, the First Circuit noted that FAS’s application was for the “relocation” of its existing station, not for the operation of a new station in tandem with the existing station. The court also noted that the environmental data and information submitted in conjunction with the application was limited to the operation of one station and that public comment was invited as to the operation of one station. Although the Commissioner has exclusive jurisdiction to regulate the disposal of waste products (including the disposal facility and transfer stations at issue), the court nevertheless held that the Commissioner’s order was arbitrary and capricious because no rational basis existed in the administrative record to permit FAS to operate both the new transfer station and the currently operating station.

Interestingly, the court acknowledged that the absence of conditional language regarding the closure of the existing transfer station may have been unintentional.  Moreover, the court’s opinion never mentions whether FAS ever signaled any intention of relying on the order to continue operating the existing station once the new station was operational.  Although the Court may have considered other, unreported factors, it appears that the court believed that, by showing a mere possibility that the Commissioner’s order hypothetically could have allowed FAS to operate both transfer stations, the plaintiffs had satisfied their burden of showing that the Commissioner’s order was arbitrary and capricious.

The court’s opinion was conspicuously silent about the plaintiffs’ three other arguments.  It is unclear whether the plaintiffs will be able to push any of the three other arguments on remand.  On the one hand, the plaintiffs might argue that, because the First Circuit did not address these issues, the plaintiffs are free to push them again on remand.  On the other hand, FAS might argue that the First Circuit necessarily, even if only implicitly, rejected these three arguments, or otherwise would have reversed, rather than just vacated, the Commissioner’s order.  These issues will remain for resolution on another day.