As if crude producers and midstream transportation companies don’t already have enough problems trying to get crude oil from production fields to refineries thanks to inadequate pipeline infrastructure, tank car supply, rail safety concerns, and new regulations, they now also have to address a new, potentially market-busting lawsuit. In September, the Sierra Club, one of the largest environmental organizations in the United States, filed a lawsuit seeking an immediate ban on the transportation of crude oil in allegedly outdated and unsafe tank cars despite the fact that the government has proposed regulations to address the same concerns.
The Proposed Regulations
Following a series of train accidents in 2013, and a number of petitions asking for more stringent railroad safety regulations, the Pipeline and Hazardous Materials Safety Administration (PHMSA) and Federal Railroad Administration (FRA) published an advance notice of proposed rulemaking (ANPRM) on September 6, 2013. At the requests of the Sierra Club, the government extended the comment period to allow additional time for more public participation and both the Sierra Club and ForestEthics (the NGOs) submitted comments relevant to the proposed rulemaking.
The Petition for an Emergency Ban
Not willing to wait for the wheels of government to turn, the two NGOs jointly filed a petition with the Secretary of Transportation on July 15, 2014, just before the proposed rules were to be published, asking DOT to issue an emergency order banning the use of unjacketed (legacy) DOT-111 tank cars to ship Bakken crude and other highly flammable crude oil. The petition claims that unjacketed DOT-111 are unsafe because in rail accidents the cars are prone to puncture, spill oil, and trigger fires and explosions. They argue that the continued use of these tank cars poses an “imminent hazard.”
Instead of directly responding to the NGOs’ petition, the government issued a Notice of Proposed Rulemaking, as planned, about two weeks later. We reported in our recent blog entry about the content and impact of these new rules, which proposes three options for phasing out of the legacy DOT-111 tank cars, none of which includes an immediate ban on their continued use. Thus, if finalized as proposed, the new rules would shippers to continue to use legacy DOT-111 tank cars to ship Bakken crude until October 2018.
The Writ of Mandamus
Although the proposed rule addresses many of the DOT-111 safety concerns by requiring retrofits and operational changes, the NGOs claim that the proposed four-year phase-out of legacy tank cars is a “glacial pace [that] is unacceptable.” Thus, they filed an original Writ of Mandamus with the United States Court of Appeals for the Ninth Circuit on September 11, 2014, seeking to force the DOT to respond their petition for an immediate ban. For a legal basis, the NGOs argue that the All Writs Act gives the Ninth Circuit Courts of Appeals jurisdiction and they claim that the DOT has violated the Administrative Procedure Act a number of ways by taking an unreasonable amount of time to respond to their Rail Car Petition.
First, the NGOs claim that threat posed by the continued use of legacy DOT-111 tank cars is so severe that the 2018 ban contemplated in the proposed rules is simply too extended. Second, they even argue that the threat of harm is so great that the rulemaking process itself will take too long and leave too much to chance. For these reasons, they claim that the DOT had an obligation to respond to their petition for emergency order within a reasonable time, i.e., 30 days. Third, the NGOs argue shippers, who own the legacy DOT-111 tank cars, lack the necessary incentives created by financial liability to stop using DOT-111 tank cars to ship Bakken crude because they generally do not bear liability for rail accidents once a rail carrier accepts a shipment. And finally, the NGOs claim that the DOT’s proposed delay banning the DOT-111 tank cars will cause prejudice because Canada has already banned the DOT-111 tank cars; thereby incentivizing North American marketers to use the unsafe DOT-111 tank cars in America and the newer and safer tank cars in Canada until after the 2018 ban.
The NGOs acknowledge that most “unreasonable delay cases” entail lengthier delays involving rulemaking proceedings that take years to complete, but argue that their petition is unique and different because it seeks an “emergency action” to abate an imminent hazard that cannot wait for a rulemaking because “lives are at stake.” Likewise, while the NGOs admit that “there is no per se rule as to how long is too long, [they nonetheless claim that] ‘a reasonable time for agency action is typically counted in weeks or months, not years,’ particularly when urgent health or environmental harms are at stake, as the case here.” Citing In re American Rivers, 372 F.3d 413, 419 (D.C. Circuit 2004).
A Case to Follow
On September 22, 2014, the Ninth Circuit denied the petitioners’ request for an expedited decision but ordered the DOT to respond to the NGOs’ writ. The court specifically directed the DOT to propose a timeline for its response to the Rail Car Petition. According to the briefing schedule, the Ninth Circuit’s ruling will likely come in early 2015.
Crude oil producers should keep an eye on how the Court and the agency address the NGOs’ request because if the DOT ultimately bans legacy DOT-111, the marketplace would immediately lose about 25 percent of tank cars available to transport crude oil in North America, creating an immediate shortage of rail cars until the industry can manufacture new tank cars using the newer standards.