Justice April Farris
The 15th Court of Appeals has withdrawn an opinion handed down in February in a TCEQ permitting case involving a terminal facility in Calhoun County. The court, however, reached the same conclusion, reversing a Travis County district court’s decision remanding the case to the TCEQ for a contested case hearing and affirming the TCEQ’s order granting the permit.
Texas Commission on Environmental Quality and Max Midstream, LLC v. San Antonio Bay Estuarine Waterkeeper, Texas Campaign for the Environment, and S. Diane Wilson (No. 15-24-00036-CV; February 27, 2025 withdrawn; rev. opinion May 20, 2025) arose from Max Midstream’s 2020 application to expand its minor source air permit to expand its terminal facility in Calhoun County. Several environmental groups opposed the permit and filed contested case hearing requests, which TCEQ denied. The groups sought judicial review in a Travis County district court, which reversed TCEQ’s decision and remanded to the agency for a contested case hearing.
In an opinion by Justice Farris, the court of appeals once again reversed and rendered judgment in favor of TCEQ. The case turned on the question of whether the proposed emissions from the expanded facility would pose an adverse health or welfare effect on nearby residents. According to the toxicologist who performed the modeling and analysis on behalf of Midstream Max, the expanded facility would produce such small magnitude amounts of ground level contaminants as to be well within TCEQ’s screening level and even less farther than one mile from the terminal itself. The environmental groups produced their own expert a public health statistician, who controverted the toxicologist’s analysis.
First, the court determined that substantial evidence supported TCEQ’s determination. The court first considered whether the permit contestants had a “personal justiciable interest” affected by the permit application, as opposed to “a hypothetical or speculative injury.” Just as in a civil action, to establish a justiciable interest a complainant must show that it has a concrete, particularized, actual, or imminent injury resulting from TCEQ’s decision. The court concluded that substantial evidence supported the agency’s determination that the permit would have a negligible impact on nearby residents and would have no discernible effect on the use or enjoyment of any of the protestants’ property. It further held that the protestants failed to carry their burden of “establish[ing] that the permitted activity would affect them differently than members of the general public,” thus dooming their standing claim. Finally, the court concluded that any impact that the permitted activity would have on protestants’ economic interests (largely in oyster fishing) was merely speculative.
Next, the court determined that the agency did not abuse its discretion by making an arbitrary and capricious decision, which is an independent ground for reversal. To establish that an agency acted arbitrarily, a complainant must show that the agency: “(1) failed to consider a factor the Legislature directs it to consider; (2) considers an irrelevant factor; or (3) weighs only relevant factors that the Legislature directs it to consider but still reaches a completely unreasonable result” (citation omitted). Here complainants asserted that TCEQ abused its discretion because Article III (U.S. Constitution) prohibits resolving merits issues at the standing phase of the process, the Commission applied “an arbitrary, uncodified one-mile test for determining” whether complainants were “affected persons,” and the Commission applied the wrong legal standard for determining “what constitutes a particularized interest.” The court rejected each of these arguments, holding: (1) the Legislature has granted exclusive jurisdiction to TCEQ to issue air quality permits and discretion to determine affected-person status; (2) complainants failed to produce any evidence that the Commission used an arbitrary “one-mile” rule or otherwise failed to follow statutory procedures; and (3) Article III had nothing to do with the Texas statutory framework for contesting a proposed permit.
TCEQ and Max Midstream asserted that the court of appeals had no jurisdiction to consider the merits of the permit. The court agreed. The Legislature has conferred on TCEQ exclusive agency jurisdiction over air permitting. This exclusive jurisdiction requires complainants to exhaust their administrative remedies before seeking judicial review. In order to do that, complainants must successfully request a contested case hearing, which the “Legislature has not chosen to make … available to the general party.” Here complainants, however, could not establish “affected person” status. Trying to circumvent this problem, they argued that § 382.032, Health & Safety Code, gave them a statutory right to appeal to district court. The court rejected this approach, observing that the statute “does not provide an avenue for direct appeal of a permit by a party who did not participate in a contested case hearing.” That avenue was available to the complainants all along, but they couldn’t make the requisite showing of particularized injury to get in the door. Further, since they weren’t eligible for a contested case hearing, they couldn’t claim to have exhausted their administrative remedies because they were not aggrieved by a final decision in such a hearing. Although there are narrow exceptions to the contested case hearing requirement, when a hearing is available, as it was here, “the person must participated in [the] hearing to exhaust administrative remedies on the contested issues.” That participation is jurisdictional. Without it, a court lacks jurisdiction altogether.
The revised opinion sets forth additional analysis, particularly of the exhaustion of remedies jurisdictional requirement. It should be required reading for administrative lawyers. As we remarked the first time we reported on this case, it makes a pretty fair demonstration of what the proponents of the 15th Court of Appeals were looking for in administrative cases, that is, a consistent application of (for the most part) well-settled legal principles to state agency decisions.
