Texas Commission On Environmental Quality and Dos Repúblicas Coal Partnership v. Maverick County

          FROM THE DISTRICT COURT OF TRAVIS COUNTY, 250TH JUDICIAL DISTRICT NO. D-1-GN-16-005038, HONORABLE TIM SULAK, JUDGE PRESIDING

          Before Justices Goodwin, Baker, and Triana

          MEMORANDUM OPINION

          Melissa Goodwin, Justice

         This administrative appeal concerns a Texas Pollutant Discharge Elimination System (TPDES) permit application for industrial wastewater discharges from the Eagle Pass Mine (the Mine) that was submitted by Dos Repúblicas Coal Partnership (DRCP) to the Texas Commission on Environmental Quality (TCEQ). The City of Eagle Pass, Environmental Defense Fund, Walter Herring, Ernesto Ibarra, Gabriel De La Cerda, Mike Hernandez, Boulware and Anson Family, Ltd, and Maverick County Environmental and Public Health Association (collectively, the Downstream Landowners) and Maverick County (the County) (collectively, with the Downstream Landowners, the Permit Contestants) challenged the TPDES permit in a contested case hearing.

         In a final order, TCEQ granted the TPDES permit over the Permit Contestants' challenges. The Travis County district court reversed and remanded on one issue-whether DRCP, the undisputed owner, was also properly considered the operator for purposes of submitting the application-but affirmed TCEQ's order in all other respects. DRCP and TCEQ now appeal the district court's judgment reversing and remanding the operator issue. On cross appeal, the Permit Contestants challenge the district court's judgment affirming TCEQ's order as to all other issues raised. For the reasons described below, we agree with the district court's judgment reversing TCEQ's order as to the operator issue and remanding for further proceedings, but we vacate in part the judgment affirming TCEQ's order as to all other issues raised.

         I. FACTUAL AND PROCEDURAL BACKGROUND^[1]

         DRCP owns the subbituminous coal Mine located in Maverick County, Texas. DRCP's predecessor in interest acquired a surface coal mining permit for the Mine in 2000, which was transferred to DRCP in 2009.^[2] See Tex. Nat. Res. Code § 134.051 (requiring permit before conducting surface coal mining operations). In 2009, DRCP entered into a Contract Mining Agreement with Camino Real Fuels, LLC (CRF) for CRF to "develop, construct, operate and perform on-going reclamation at the Mine and to remove and deliver coal from the Mine" to DRCP. In 2013, the Railroad Commission renewed and issued to DRCP the surface coal mining permit and approved CRF as the operator of the Mine. See id. § 134.004(10) (defining "operator" for purposes of Texas Surface Coal Mining and Reclamation Act as "person engaged in coal mining who removes or intends to remove more than 250 tons of coal from the earth by coal mining within 12 consecutive months in one location"). Removal of coal began in 2015. However, without a TPDES permit, DRCP would not be able to operate the Mine as it is currently designed. See Tex. Water Code § 26.121 (prohibiting unauthorized discharge of industrial wastewater into or adjacent to water in the state); 30 Tex. Admin. Code § 305.1(b) (Tex. Comm'n of Envtl. Quality, Scope and Applicability) (describing TPDES permit program).^[3]

         DRCP's predecessor in interest acquired a wastewater discharge permit for the Mine in 1994, which was renewed in 2001, 2006, and most recently on November 7, 2011 (the Current TPDES Permit), which was set to expire on September 1, 2015. See Tex. Water Code § 26.027(a) (authorizing TCEQ to issue permits "for the discharge of waste or pollutants into or adjacent to water in the state"). On September 5, 2013, DRCP applied to TCEQ to amend and renew the Current TPDES Permit. Although DRCP had held a TPDES permit for many years, it had not discharged prior to submitting its September 2013 application. The Current TPDES Permit authorized discharges of stormwater and mine seepage water from active mining areas through certain outfalls, ^[4] imposed effluent limitations, required flow to be monitored and reported, and included additional reporting, notice, monitoring, testing, and record-keeping requirements. In its application, DRCP sought to add certain mining areas and make a boundary change; remove some outfalls; maintain certain current outfalls and add new outfalls for discharging stormwater, wastewater, and mine seepage; and allow water in ponds to be used for dust suppression.

         TCEQ's Executive Director declared the application complete in January 2014. In February 2015, TCEQ referred the application to the State Office of Administrative Hearings (SOAH) to be heard by two administrative law judges (ALJs) on DRCP's request. The Permit Contestants were admitted as parties, and a four day contested case hearing occurred in November 2015. As relevant to this appeal, the following five issues were discussed at the hearing: (1) whether DRCP's contractor CRF should have applied as the permit operator, (2) whether TCEQ properly conducted its antidegradation review, (3) whether water quality based effluent limits for aluminum and boron should be imposed in the permit, (4) whether chronic effluent limits are needed at certain outfalls, and (5) whether TCEQ, by approving the draft permit, was thereby approving an illegal discharge route on private property not owned or controlled by DRCP.

         In April 2016, the ALJs issued a proposal for decision (PFD), recommending that the draft permit be granted with a few changes, including "the addition of a boron limit and a requirement that aluminum be monitored." After considering the PFD, TCEQ issued a July 2016 final order granting DRCP's application. But in the final order, TCEQ deleted the ALJ's recommended findings on the boron limit and aluminum monitoring requirement and instead added what it called Other Requirement No. 10 that imposed "a robust and meaningful sampling regime" that "would occur periodically over the life of the permit to ensure that the effluent limits and monitoring requirements in the permit reflect the continuing water quality at the site." See Tex. Gov't Code § 2003.047(m) (permitting amendment of PFD).

         The Permit Contestants appealed the issues described above to the Travis County district court, adding as an issue that TCEQ improperly modified the PFD by deleting the boron limit and aluminum monitoring requirement. See id. § 2001.171 (providing for judicial review). The district court reversed TCEQ's final order and remanded "because the agency's determination regarding the proper entity to be identified as the operator of the Mine was made in violation of statutory and regulatory provisions, was not reasonably supported by substantial evidence considering the reliable and probative evidence in the record as a whole, and was arbitrary and capricious," but affirmed TCEQ's order "with respect to the other issues on appeal." See generally id. § 2001.174 (providing that reviewing court may affirm in whole or in part or reverse or remand for further proceedings). All parties now appeal to this Court. See id. § 2001.901(a) (providing for appeal from final district court judgment).

         II. STANDARD OF REVIEW

         Our review of TCEQ's final order is governed by section 2001.174 of the Texas Administrative Procedure Act. See id. § 2001.174. This standard requires that we reverse or remand a case for further proceedings "if substantial rights of the appellant have been prejudiced because the administrative findings, inferences, conclusions, or decisions" (A) violate constitutional or statutory provisions, (B) exceed the agency's statutory authority, (C) were made through unlawful procedure, (D) are affected by other error of law, (E) are not reasonably supported by substantial evidence considering the reliable and probative evidence in the record as a whole; or (F) are arbitrary or capricious or characterized by abuse of discretion of clearly unwarranted exercise of discretion. Id. § 2001.174(2)(A)-(F).

         As to questions committed to agency discretion, a court may not substitute its own judgment for the agency's judgment on the weight of the evidence. Id. § 2001.174. Essentially, this is a rational basis test to determine, as a matter of law, whether there is a reasonable basis in the record for the agency's action. Jenkins v. Crosby Indep. Sch. Dist., 537 S.W.3d 142, 149 (Tex. App.-Austin 2017, no pet.) (citing Texas Health Facilities Comm'n v. Charter Med.-Dall., Inc., 665 S.W.2d 446, 452-53 (Tex. 1984)). We therefore are not concerned with the correctness of the agency's decision, but its reasonableness, and we apply this analysis without deference to the district court's judgment. Id. (citing Sanchez v. Texas State Bd. of Med. Exam'rs, 229 S.W.3d 498, 510-11 (Tex. App.-Austin 2007, no pet.); Texas Dep't of Pub. Safety v. Alford, 209 S.W.3d 101, 103 (Tex. 2006) (per curiam)).

         A substantial evidence review of an agency's final decision or action involves the following two component inquiries:

(1) whether the agency made findings of underlying facts that logically support the ultimate facts and legal conclusions establishing the legal authority for the agency's decision or action and, in turn, (2) whether the findings of underlying fact are reasonably supported by the evidence.

Id. The first inquiry may entail questions of law that we review de novo. Id. at 150. On the other hand, the second inquiry is highly deferential to the agency's determination-the evidence may even preponderate against the agency's finding-and it requires only "such relevant evidence as a reasonable mind might accept as adequate to support a [finding] of fact." Id. at 149 (quoting Slay v. Texas Comm'n on Envtl. Quality, 351 S.W.3d 532, 549 (Tex. App.-Austin 2011, pet. denied)). In other words, it requires "only more than a mere scintilla, to support an agency's determination." City of Dallas v. Stewart, 361 S.W.3d 562, 566 (Tex. 2012) (quoting Montgomery Indep. Sch. Dist. v. Davis, 34 S.W.3d 559, 566 (Tex. 2000)). "We presume that the agency's findings, inferences, conclusions, and decisions are supported by substantial evidence, and the burden is on the contestant to demonstrate otherwise." Jenkins, 537 S.W.3d at 149 (citing Charter Med.-Dall., 665 S.W.2d at 453).

         The arbitrary and capricious standard and the substantial evidence standard have, at times, "been considered two sides of the same coin." Charter Med.-Dall., 665 S.W.2d at 454. Yet, our case law has drawn demarcations between these standards, see id., and we have identified instances in which an action may be arbitrary and capricious even if substantial evidence supports the agency's order-e.g., "if a denial of due process has prejudiced the litigant's rights or if the agency has improperly based its decision on non-statutory criteria" or "if it is based on legally irrelevant factors or if legally relevant factors were not considered or if the agency reached an unreasonable result," Texas Dep't of Ins. v. State Farm Lloyds, 260 S.W.3d 233, 245 (Tex. App.-Austin 2008, no pet.); see Public Util. Comm'n v. Gulf States Utils., Co., 809 S.W.2d 201, 207 (Tex. 1991) ("[I]f the Commission has failed to follow the clear, unambiguous language of its own regulation, we must reverse its action as arbitrary and capricious.").

         With these standards in mind, we turn to the parties' dispute.

         III. DISCUSSION

         The parties present five issues in this appeal. DRCP and TCEQ appeal the operator issue. On cross appeal, the Permit Contestants raise the antidegradation and improper modification of the PFD issues. The Downstream Landowners, but not the County, additionally raise the chronic effluent limits and illegal discharge route issues. We first consider DRCP and TCEQ's operator issue. Overruling DRCP and TCEQ's issue, we affirm the district court's order reversing TCEQ's final order. Because we affirm the reversal and conclude that the TPDES permit application was incomplete, we do not address the remaining four issues.

         In their first and only issue, DRCP and TCEQ challenge the district court's reversal of TCEQ's determinations that DRCP is the owner and operator for purposes of submitting an application and that the TPDES permit application was complete. See 30 Tex. Admin. Code § 305.43(a) (Who Applies) (noting that "it is the duty of the operator and the owner to submit an application for a [TPDES] permit"). The Permit Contestants argue that CRF, not DRCP, is the operator, and we agree. To provide context for this issue, we first ...