On July 8, 2013, the Seventh Circuit Court of Appeals affirmed a 2011 Illinois District Court decision and held that a failure to obtain a Prevention of Significant Deterioration (PSD) construction permit is not a continuing violation, and therefore any legal claim that a facility modification requires a PSD permit must be brought within five years of the commencement of construction, or it is barred by the statute of limitations (United States v. Midwest Generation LLC, 7th Cir., No. 12-1026 and No. 12-1051 7/8/13). This decision will be a significant blow to EPA and environmental groups’ efforts to prosecute PSD claims for modifications that occurred more than five years ago.

The underlying District Court decision had received significant attention from industry and environmental advocates because it provided two very important precedents: 1) Clean Air Act liability does not transfer to a new owner upon the asset purchase of a facility, and 2) construction without a PSD permit is a one-time violation subject to the five year statute of limitations. The Seventh Circuit did not disturb or otherwise reverse the first precedent. Instead, the Court held that it need not address that issue because “[defendants] cannot be liable when its predecessor in interest would not have been liable had it owned the plants continuously.”

In focusing on the statute of limitations issue, the Court asked two questions: 1) is it a “continuing violation” every day a facility operates without a PSD construction permit; and 2) does the failure to obtain a PSD permit cause a “continuing injury”? On the first point, the Court quickly concluded that the failure to obtain a PSD permit is a violation that “is complete when construction commences without a permit in hand.” The Court further concluded that “[n]othing in the text of [Clean Air Act] §7475 even hints at the possibility that a fresh violation occurs every day until the end of the universe if an owner that lacks a construction permit operates a completed facility.” On the second point, the court concluded that “[t]oday’s emissions cannot be called unlawful just because of acts that occurred more than five years before the suit began. Once the statute of limitations expired, Commonwealth Edison was entitled to proceed as if it possessed all required construction permits.” The court emphasized prior precedent by the U.S. Supreme Court which held that “enduring consequences of acts that precede the statute of limitations are not independently wrongful.”

This decision is important for at least four significant reasons. First, this decision has the potential to significantly reduce, and in some cases, perhaps completely eliminate, legacy PSD enforcement liability associated with older boilers and other emission sources. Second, it significantly undermines EPA’s approach to a national PSD enforcement initiative, which has routinely included significant “look-backs” to reevaluate historic projects that were allegedly constructed without PSD permits. Third, and of importance in Wisconsin, this decision can be cited as precedent to reverse Judge Crabb’s decision in Sierra Club v. Dairyland Power Cooperative, CA No. 10-cv-303-bbc, 2010WL 4294622 (W.D. Wisc. Oct. 21, 2010) that a failure to obtain a PSD permit is an ongoing violation. And finally, this decision affirms previous decisions from the Eighth and Eleventh Circuits, which both previously held that the failure to obtain a PSD permit is a one-time violation.

In summary, this decision represents a very positive shift for facility owners and operators who have historically been subject to potential threats of enforcement action and citizen suits alleging PSD violations associated with projects that, in many cases, occurred decades ago. EPA and ENGOs may still attempt to pursue similar claims using different legal theories and procedural mechanisms. Nonetheless, one main purpose of the statute of limitations is to ensure that lawsuits are timely filed so that evidence of alleged violations may be appropriately preserved for a trier of fact. This decision reinforces the importance of the statute of limitations and should provide some relief to owners and operators who are often put in the position of trying to demonstrate to an enforcing agency that highly fact-specific PSD determinations made for decades-old projects were appropriate at the time they were made.