CITIZEN SUIT WATCH: Prevailing Defendants Forego $6.4 Million Attorney’s Fees Award In Broad Clean Air Act Citizen Suit Settlement

Owners of the Big Brown coal-fired power plant in Texas have agreed to forego an award of $6.4 million in attorney's fees they obtained against Sierra Club in a Clean Air Act (CAA) citizen suit last summer in exchange for the environmental group's agreement not to pursue certain CAA claims against other facilities, to release all claims against the companies to date, and to withdraw a Freedom of Information Act (FOIA) request to the U.S. Environmental Protection Agency (EPA). With this settlement, the companies traded a laudable but uncertain fee award―which was on appeal and may have been in jeopardy because fees are not normally assessed against public interest groups—for much broader (and assured) benefits, including (i) avoiding millions of dollars in future litigation fees and expenses and (ii) foreclosing the risk posed by pending and threatened litigation.

Defense Verdict and Attorney's Fee Award

In 2012, Sierra Club filed suit against Luminant Generation Company (Luminant) and Energy Future Holdings Corporation (EFHC) alleging that the Big Brown coal-fired power plant in Freestone County, Texas had violated Sections 304 and 505 of the Clean Air Act (CAA). See Sierra Club v. Energy Future Holdings Corp. et al., No. 6:12-cv-00108 (W.D. Tex. filed May 1, 2012). Although the Texas Commission on Environmental Quality (TCEQ) investigated plaintiff's allegations and determined the plant had not violated its Title V permit, Sierra Club still brought suit and alleged that Big Brown's emissions had violated the opacity and particulate matter (PM) limits in the Texas State Implementation Plan or "SIP," the plant's Title V Permit, and the CAA. 

The group's suit survived a motion to dismiss in 2013, but was ultimately unsuccessful. The U.S. District Court for the Western District of Texas granted partial summary judgment in favor of EFHC and Luminant on the basis that there were no violations of PM limits at Big Brown. The court then held a three-day bench trial on the opacity issues in February 2014, ultimately agreeing with defendants and the TCEQ that no violations occurred because the CAA and the Title V permit allow opacity events under certain circumstances and permitted the particular events at Big Brown (e.g., emissions during startup, shutdown, maintenance, or malfunction events).

The court also determined that an award of the costs of litigation, including attorney's fees, was appropriate under CAA Section 307(d), 42 U.S.C. § 7604(d), which provides for an award of the costs of litigation "to any party, whenever the court determines such award is appropriate." The court also applied the standard in Christianburg Garment Co. v. EEOC, 434 U.S. 412, 422 (1978), which permits a fee award to prevailing defendants if the plaintiff's claims were "frivolous, unreasonable, or groundless, or that the plaintiff continued to litigate after it clearly became so."¹  The court further held that a heightened standard should apply when a defendant prevails because of the public policy interest in allowing plaintiffs to pursue legitimate (even if not airtight) claims. 

Even under a heightened standard, the court found that plaintiff's claims were frivolous, unreasonable, or groundless. Thus, it determined that defendants were entitled to an attorney's fee award and that defendants' requested fees and costs were reasonable, save a conditional appellate fee sum of $300,000.²

The court considered the following factors:

• Defendants had successfully defended against all of Sierra Club's claims.
• Sierra Club was unable to show a prima facie PM violation and that claim was dismissed at the summary judgment stage.
• Sierra Club was aware that Big Brown's Title V permit exempted certain opacity-producing activities, rendering the opacity claim meritless.
• At trial, Sierra Club failed to prove either causation or injury-in-fact for its sole standing witness or any other person (indeed, the standing witness was not even placed on the witness list).
• Sierra Club insisted on keeping EFHC as a defendant, even though it knew it had no role in the ownership or operations of Big Brown.
• TCEQ had determined that no CAA violations had occurred.
• Sierra Club admitted that it failed to analyze or investigate TCEQ's investigation reports before filing suit.
• Sierra Club's suit had caused "immense discovery, expense, and use of judicial resources."³

The court also determined that the number of hours billed and billing rates were reasonable and that the legal issues presented and damages requested had justified defendants' use of out-of-district counsel whose home-market rates applied. Moreover, those same attorneys were working to defend a similar case brought by Sierra Club in a neighboring district and "[r]etaining two separate legal teams strictly composed of local counsel in each case would have been highly inefficient and a waste of resources." The court also noted that "Defendants, unlike Plaintiff, did hire local counsel who assisted in the case."⁴ 
The court thus awarded $6,446,019.56 to EFHC and Luminant for fees and costs. 

The Parties' Broader Settlement

After Sierra Club appealed the fee award to the Fifth Circuit Court of Appeals in September 2014, EFHC and Luminant used that award as a bargaining chip to secure wider and assured benefits. In exchange for the companies' agreement not to enforce that judgment, Sierra Club agreed to drop all current and currently threatened lawsuits against Luminant and EFHC.⁵  The group agreed to withdraw its pending petition to EPA asking the agency to object to the renewal of several of Luminant's operating permits, to dismiss its suit against EPA alleging failure to timely respond to that petition,⁶ and to release all past claims against EFHC occurring prior to and through the effective date of the settlement.

Sierra Club further agreed to withdraw a FOIA request to EPA seeking certain documents produced by Luminant concerning a New Source Review case involving its Martin Lake steam electric station and the Big Brown plant, the disclosure of which Luminant had sued to block in March on the basis that it would cause competitive harm by offering a glimpse into the company's operations, market positions, and strategies.⁷  Instead, the company will provide those documents under a sealing or protective order. 
Luminant and EFHC also agreed not to object to Sierra Club's intervention in the EPA's August 2013 suit alleging violations of the CAA at the Martin Lake and Big Brown facilities under certain negotiated limitations to intervention.⁸

With that agreement, Luminant and EFHC have traded an uncertain fee award, which could have been reversed or reduced by the Fifth Circuit or otherwise been uncollectable in full, for much broader and more valuable elimination of potential liability and risk. As they explained to the U.S. Bankruptcy Court for the District of Delaware – which must approve the settlement because EFHC and its subsidiaries are undergoing Chapter 11 reorganization – "resolving each cause of action through the civil litigation process would take several more years, cost millions of dollars in additional fees and expenses, and would be a distraction to the Debtors' business operations. Furthermore, . . . due to the inherent uncertainty of litigation, there is a risk that the Settling Debtors will not be able to recover the full $6.45 million amount of the Fee Award and might not prevail on all other threatened and pending litigation."⁹

Implications

The fee award in this case may have wide-reaching implications for entities faced with citizen suits. For decades, citizen plaintiff groups have been able to receive attorney's fees when they prevail or settle, with little to no risk for filing unsuccessful suits. Defendants typically have not sought attorney's fees when they prevail against such citizen suits in large part because they see that effort as futile. The district court's order puts the possibility of fees back into play and serves as persuasive precedent defendants can rely on in seeking such fees. Some commenters believe it could provide some measure of deterrence to citizen groups contemplating such actions. This case also provides an interesting illustration of how defendants who face multiple citizen suits might relieve themselves of substantial liability and risk by leveraging a fee award to secure a broader settlement.

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For a copy of the district court's opinion on opacity, click here. The court's order on attorney's fees is available here, the motion to the bankruptcy court to approve the settlement is here, and the settlement agreement may be found here. For our previous alert on the motion to dismiss in this case, click here.

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¹ In addition, the court relied on 28 U.S.C.§ 1927, which permits a fee award against an attorney who "multiplies the proceedings in any case unreasonably and vexatiously."

² See Order, Sierra Club v. Energy Future Holdings Corp., No. 6:12-cv-108 (W.D. Tex. Aug. 29, 2014) [Dkt. 305].

³ Id. at 14.

⁴ Id. at 16.

⁵ Sierra Club had filed suit against Luminant and EFHC alleging violations of the CAA at Luminant's Martin Lake Steam Electric Station, see Sierra Club v. Energy Future Holdings Corp., No. 5:10-cv-00156 (E.D. Tex. filed Sept. 2, 2010), and Big Brown Generating Station, see Sierra Club v. Energy Future Holdings Corp., No. 6:12-cv-108 (W.D. Tex. filed May 1, 2012).  The group also sent notice-of-intent-to-sue letters to EFHC and its subsidiaries alleging CAA violations at Luminant's Monticello Steam Electric Station and Sandow Power Station Unit 4.

⁶ See Envtl. Integrity Project & Sierra Club v. McCarthy, No. 14-1196 (D.D.C. filed July 16, 2014).

⁷ See Luminant Generation Co. v. EPA, No. 4:14-cv-172 (E.D. Tex. filed Mar. 25, 2014).

⁸ See United States v. Luminant Generation Co., No. 3:13-cv-03236 (N.D. Tex. filed Aug. 16, 2013).

⁹ See Motion of Energy Future Holdings Corp, et al. For An Order (A) Authorizing Entry Into And Performance Under The Settlement Agreement Between Certain Of The Debtors And Sierra Club Pursuant To Section 363(b) Of The Bankruptcy Code And Rule 9019 Of The Federal Rules Of Bankruptcy Proceedings And (B) Modifying The Automatic Stay at 5, No. 1:14-bk-10979 (Bankr. D. Del Nov. 24, 2014) [Dkt. 2865].

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