The Texas Supreme Court has granted review in a case that could have significant implications for TCEQ’s authority to override an administrative law judge’s findings of fact or conclusions of law. Nicky E. Dyer; Flora Harrell; Edgar Hoagland; Shirley Hoagland; James Langston; James A. Langston III; Lois Nelson; Brian Rodel; Richard Ward; Edwin A. (Art) Wilson; Montgomery County; and City of Conroe v. Texas Commission on Environmental Quality; Bryan W. Shaw, In His Official Capacity as Chairman of the Texas Commission on Environmental Quality; Buddy Garcia and Carlos Rubinstein, In Their Official Capacities as Commissioners of the Texas Commission on Environmental Quality; and TexCom Gulf Disposal, LLC (No. 19-1104) arose from TCEQ’s 2011 approval of TexCom’s application for permits to build and operate underground injection wells for the disposal of non-hazardous industrial waste in Montgomery County.

In approving the permits, TCEQ rejected the ALJs’ recommendation that the permits be denied and modified at least 20 of the ALJs’ 266 findings of fact and 9 of the ALJ’s 54 conclusions of law. Most of the changes involved the extent to which the waste injected into the wells could migrate into a nearby producing oil and gas reservoir, potentially risking contamination of underground sources of drinking water in the event fracking operations returned the waste to the surface. The ALJs concluded that the oil and gas operator’s (Denbury Onshore, LLC) present and future operations indeed posed such a risk, that the City of Conroe’s publicly owned water treatment facility was a reasonable alternative to underground injection, and that TexCom had failed to show by a preponderance of evidence that its wells were in the public interest. The Commission, however, changed the ALJs’ findings to state that the wells posed no risk of contamination and approved TexCom’s application.

The ensuing litigation commenced in 2011 in a Travis County district court. The case churned around in the trial court for 6 years, ultimately resulting in the affirmation of TCEQ’s order and denial of the plaintiffs’ request for declaratory relief. Plaintiffs appealed to the Austin Court of Appeals, which issued an initial memorandum opinion affirming the trial court in May 2019. The plaintiffs’ then filed a motion for en banc reconsideration, which the court of appeals dismissed as moot when it withdrew its initial opinion and issued a new memorandum opinion on rehearing, likewise affirming the trial court. Justice Goodwin, joined by former Chief Justice Rose, authored the opinion, from which Justice Kelly dissented. The court of appeals then denied a second motion for en banc consideration. Plaintiffs filed a petition for review in the Texas Supreme Court in March 2020.

Now, 16 years after TexCom filed its permit application in 2005, 14 years after the SOAH contested case hearing in 2007, and 10 years after the TCEQ approved the application in 2011, SCOTX will decide whether TCEQ complied with the Administrative Procedures Act provisions that permit TCEQ to modify the ALJs’ findings of fact or conclusions of law under certain circumstances. Specifically, §2001.058(e), Government Code, allows a state agency to make such changes, or to vacate or modify an order issued by the ALJ, if the agency determines that: (1) the ALJ did not properly apply or interpret applicable law, agency rules, written policies […], or prior administrative decision; (2) a prior administrative decision on which the ALJ relied is incorrect or should be changed; or (3) a technical error in a finding of fact should be changed. If it makes such changes, the agency must “state in writing the specific reason and legal basis for” each change. A second statute, §2003.047(m), Government Code, applies specifically to TCEQ. That statute authorizes TCEQ (except in contested cases under the Solid Waste Disposal Act, which has its own, more stringent standard for PFD amendments) to “amend the proposal for decision, including any finding of fact, but any such amendment thereto and order shall be based solely on the record made before the administrative law judge.” This provision also requires the commission to publish “an explanation of the basis of the amendment” and allows the commission to remand to the ALJ for reconsideration, to take additional evidence, or to make additional findings of fact and conclusions of law.

The majority’s analysis concluded that §2003.047(m) supersedes 2001.058(e), thereby requiring TCEQ only to base changes to the PFD on the record before the ALJ and to accompany those changes with an explanation of their basis. The majority then scrutinized TCEQ’s explanation of the changes and found that the record supported each one. Finally, the majority held that TCEQ’s explanation of each change met the requirement of the standard in §2003.077(m), and that to the extent §2001.058(e) required a more specific explanation, it did not apply. The majority further rejected plaintiffs’ substantial evidence challenges to certain findings and conclusions, many of which concerned whether Denbury’s oil and gas operations would or would not end up producing TexCom’s waste, and upheld the commission’s finding that the permit was in the public interest and that no practical, economic, and feasible alternative was available. Finally, the majority rejected the plaintiffs’ Open Meetings Act challenges.

There is a separate issue in the case involving the applicant’s obligation under §27.015, Water Code, to provide a “no harm” letter from the Texas Railroad Commission with its application for an injection well permit. This letter certifies that the proposed project will not “endanger or injure any known oil and gas reservoir.” Here TexCom proposed to drill the wells in a producing formation called the Cockfield Formation. In 2005 RRC staff determined that TexCom’s wells would not endanger any oil and gas interests and that a thick shale layer would prevent migration of TexCom’s waste into the oil and gas reservoir. The RRC duly issued the letter, and it was made part of the application and the administrative record. In late 2009, however, Denbury became the lessee-operator of mineral interests underlying TexCom’s proposed site, filed a motion to intervene in the contested case, and was granted party status in 2010. At the same time Denbury asked the RRC to withdraw its no harm letter and asked the ALJs to continue the contested case hearing until the RRC acted (by this time, TCEQ had remanded the initial PFD to the ALJs in order to take additional evidence on specified findings). The ALJs’ denied Denbury’s motion and proceeded with the hearing, ultimately recommending denial of TexCom’s application based partly on the risk posed to Denbury’s oil and gas operations. After the ALJs issued their PFD, the RRC rescinded the no harm letter in early 2011.

Plaintiffs argued that the RRC’s rescission of the no harm letter nullified TCEQ’s approval of TexCom’s permit. The majority disagreed, holding that TexCom complied with the statutory requirement by obtaining a no harm letter in 2005, thus allowing consideration of the merits of its permit application to proceed. The majority declined to “expand” §27.015 to require the nullification of a TCEQ order after due provision of a no harm letter, a contested case hearing in which the letter was introduced as evidence without objection, issuance of a PFD and closure of the administrative record, and TCEQ consideration and decision in an open meeting.

In a brief dissent, Justice Kelly takes issue with the majority’s holding that §2003.047(m) trumps §2001.058(e). She argues that both statutes can be applied without contradiction and cites cases in which they have been. She argues further that if §2003.047(m) relieves the TCEQ of the obligation to provide specific reasons and legal bases for changing a PFD, “it significantly interferes with a reviewing court’s ability to determine whether the agency’s changes were based solelyon the record before the ALJ. The record may reveal many things, but it does not reveal the legal and factual analyses the TCEQ utilizes in its decision making.” Finally, Justice Kelly would hold that TCEQ did not adequately explain the changes even under §2003.047(m) but merely made “sweeping assumptions” with no particular stated rationale.

SCOTX has scheduled oral argument on January 12 at 9 a.m. The case presents salient issues of statutory interpretation of the APA, as well as raising a question about the effect of the Railroad Commission’s rescission of a no harm letter after a permit has been issued in reliance on a previous letter. In any event, it will be interesting to see just how much guidance SCOTX is willing to give with respect to the adequacy of TCEQ’s explanation of its decisions to amend an ALJ’s PFD.

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