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United States v. K.P. Kauffman Co. Inc.

United States District Court, D. Colorado

June 28, 2019




         This matter is before the Court on defendant K.P. Kauffman Company, Inc.'s (“KPK”) motion to dismiss. ECF No. 11. For the reasons discussed below, the motion is DENIED.

         I. BACKGROUND

         The plaintiffs in this civil lawsuit are the federal Environmental Protection Agency (“EPA”) and the Colorado Department of Public Health and Environment, Air Pollution Control Division (“CDPHE”).[1] Both entities are acting through the authority of their respective Attorneys General. Plaintiffs allege illegal emissions of volatile organic compounds (“VOCs”) from KPK's hydrocarbon liquid storage tanks in violation of the following: (1) the federal Clean Air Act (“CAA”), 42 U.S.C. § 7413(b); (2) the Colorado Air Pollution Prevention and Control Act (“APPCA”), Colo. Rev. Stat. § 25-7-101; (3) Colorado's federally approved State Implementation Plan (“SIP”); and (4) Colorado's Air Quality Control Commission Regulation Number 7 (“Regulation 7”). Complaint, ECF No. 1 at ¶¶2-3.

         KPK is a privately held company headquartered in Denver, Colorado. Id. at ¶13. KPK specializes in hydrocarbon liquid and natural oil and gas production and exploration in the Denver-Julesburg (“D-J”) Basin, primarily in the Wattenberg Field in Adams and Weld Counties. Id. at ¶¶13-14. KPK owns and operates hundreds of oil and gas facilities in the D-J Basin. Id. at ¶14. In 2016, in the D-J Basin alone, KPK produced approximately 272, 643 barrels of hydrocarbon liquids and 1.9 billion cubic feet of natural gas. Id. at ¶14. KPK stores its hydrocarbon liquids-better known as condensate or crude oil-in storage tanks. Id. at ¶3. These tanks are grouped in “tank batteries”; KPK owns and operates 124 such batteries in the D-J Basin that the company has certified as being controlled to comply with the Colorado SIP and Regulation 7's system-wide VOC reduction requirements. Id. at ¶¶4, 6.

         In September 2016 plaintiffs informed KPK of its noncompliance with the CAA, APPCA, and Regulation 7 by issuing KPK a Compliance Advisory. Id. at ¶11. The EPA and CDPHE later filed formal Notices of Violation in March 2018. Id. Following the issuance of the Compliance Advisory and later the Notices of Violation, plaintiffs met with KPK several times between September 2016 and October 2018. ECF No. 11 at 5. Then, in October 2018, without issuing a final agency order, plaintiffs filed this lawsuit alleging illegal emissions of VOCs from 41 specific tank batteries owned or operated by KPK.

         Plaintiffs developed its factual basis for the complaint following a five-year investigation, spanning from 2013 to 2018. Between September 2013 and April 2015, CDPHE inspectors, using infrared cameras, observed emissions at 18 tank batteries located in the 8-hour Ozone Control Area.[2] Id. at ¶58. Then, on December 9, 2015 CDPHE issued a Compliance Advisory to KPK in which it identified violations of Regulation 7 at those same 18 tank batteries. Id. at ¶59. The following year, on June 21, June 30, and July 22, 2016, EPA and CDPHE inspectors conducted three joint inspections on 19 KPK tank batteries; those inspections resulted in observed VOC emissions at 12 of the 19 tank batteries. Id. at ¶62. In total, between September 13, 2013 and February 22, 2018, federal and state inspectors conducted inspections at 153 of KPK's tank batteries, resulting in observations of VOC emissions 59 times at 41 unique tank batteries. Id. at ¶62. These 41 tank batteries are listed by “AIRS ID” and facility name in Appendix A to the complaint. App. A, ECF No. 5. Moreover, in August 2015, EPA requested information from KPK regarding its Vapor Control Systems at KPK's 124 tank batteries. Id. at ¶63. Based on KPK's responses to EPA's requests, EPA and CDPHE concluded that KPK's equipment and operations were in violation of federal and state regulations. Id. at ¶63.

         As a result of KPK's alleged wrongdoing, plaintiffs sued on four counts. Claims one and two are joint federal-state claims asserting violations of Regulation 7, §§ XII.C.1.b and XII.C.1.a, respectively. Id. at ¶¶67-78. Claims three and four are CDPHE-only claims for alleged violations of numerous sections of Regulation 7. Id. at ¶¶79-90. Shortly after plaintiffs filed its complaint in October 2018, defendant filed a motion to dismiss. ECF No. 11. Defendant also requested hearing on the motion to dismiss, which I granted. The Court heard oral arguments from all parties at the March 12, 2019 hearing. My legal conclusions are set forth in this order.


         Defendant argues that the first three claims must be dismissed per Fed.R.Civ.P. 8 and 12(b)(6). ECF No. 11 at 2. Under defendant's theory, once the Court dismisses the federal claims, claims three and four must be dismissed per Rule 12(b)(1). Id.

         A. Rules 8(a)(2) and 12(b)(6).

         Fed. R. Civ. P. 8(a)(2) requires that a pleading stating a claim for relief contain “a short and plain statement of the claim showing that the pleader is entitled to relief.” A plaintiff must set forth a plausible, not merely a possible, claim. Bell Atlantic Corp. v. Twombly, 550 U.S. 544, 570 (2007). To survive a Fed.R.Civ.P. 12(b)(6) motion to dismiss, the complaint must contain “enough facts to state a claim to relief that is plausible on its face.” Ridge at Red Hawk, L.L.C. v. Schneider, 493 F.3d 1174, 1177 (10th Cir. 2007) (quoting Twombly, 550 U.S. at 570). A plausible claim is a claim that “allows the court to draw the reasonable inference that the defendant is liable for the misconduct alleged.” Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009). While the Court must accept the well-pleaded allegations of the complaint as true and construe them in the light most favorable to the plaintiff, Robbins v. Wilkie, 300 F.3d 1208, 1210 (10th Cir. 2002), conclusory allegations are not entitled to be presumed true. Iqbal, 556 U.S. at 681. However, so long as the plaintiff offers sufficient factual allegations such that the right to relief is raised above the speculative level, the plaintiff has met the threshold pleading standard. See, e.g., Twombly, 550 U.S. at 556; Bryson v. Gonzales, 534 F.3d 1282, 1286 (10th Cir. 2008).

         B. Rule 12(b)(1).

         Fed. R. Civ. P. 12(b)(1) “allows a court to dismiss a complaint for lack of subject matter jurisdiction.” Pueblo of Jemez v. United States, 790 F.3d 1143, 1151 (10th Cir. 2015). There is a presumption that a cause of action lies outside a federal court's limited jurisdiction, “and the burden of establishing the contrary rests upon the party asserting jurisdiction.” Id. (quoting Becker v. Ute Indian Tribe of the Uintah and Ouray Reservation, 770 F.3d 944, 947 (10th Cir. 2014)). A motion to dismiss under Rule 12(b)(1) can either: “(1) facially attack the complaint's allegations as to the existence of subject matter jurisdiction, or (2) go beyond allegations contained in the complaint by presenting evidence to challenge the factual basis upon which subject matter jurisdiction rests.” Maestas v. Lujan, 351 F.3d 1001, 1013 (10th Cir. 2003).

         II. ANALYSIS

         A. Plaintiffs Have Satisfied the Pleading Requirements.

         Defendant argues that the first three claims must be dismissed because they are based on mere speculation and do not satisfy the pleading requirements. ECF No. 11 at 2. Defendant makes two specific arguments applicable to all three claims. The first is that the “general provisions” of Regulation 7 alleged to be violated in claims one, two, and three do not ban VOC emissions. Id. at 7. Rather, Regulation 7 directs owners and operators to simply minimize leakage. Id. The second is that defendant alleges that none of the claims are accompanied by specific facts as required by Rule 8. Defendant then addresses each claim individually. Defendant takes issue with claim one because that claim alleges, among other things, that defendant failed to conduct a “design analysis” on its tank batteries. See ECF No. 1 at ¶69. But defendant argues that Regulation 7 does not require a discrete design analysis. ECF No. 11 at 9. Thus, according to defendant, these allegations fail to state a claim under Regulation 7. Id. Concerning claim two, defendant takes issue with the specificity of the facts accompanying the claim because plaintiff fails to specify on which tank batteries the violations allegedly occurred. Id. at 11. Defendant then argues that the factual allegations supporting claim two are found only in claim two and not in the factual allegations portion of the complaint, which defendant alleges is improper. Id. Lastly, defendant argues that plaintiffs improperly shifted the burden to defendant because the complaint alleges that defendant has not fully complied with Regulation 7, such as failing to develop and implement a STEM plan or failing to demonstrate to CDPHE that it practiced good air pollution control. Id. at 13-14. I address defendant's arguments in turn.

         1. Claim One.

         The first claim for relief is a joint claim by the EPA and CDPHE for violations of Regulation 7, § XII.C.1.b. That section states that “[a]ll condensate collection, storage, processing and handling operations, regardless of size, shall be designed, operated and maintained so as to minimize leakage of volatile organic compounds to the atmosphere to the maximum extent practicable.” 5 Colo. Code Regs. § 1001-9:XII.C.1.b (2019) (emphasis added). Specifically, plaintiffs allege that defendant failed to conduct a design analysis to determine if the Vapor Control Systems “at one or more of its tank batteries” have the capacity to route all VOC emissions appropriately to minimize leakage of VOCs to the atmosphere. ECF No. 1 at ¶69. Plaintiffs then allege that defendant's tanks were not designed to minimize ...

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