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Administrative Hearings in Texas: Three Recent Cases

Three recent cases illustrate a little known aspect of Texas law – administrative law and how it works, and doesn’t work. Although the cases don’t directly affect mineral owners, they show how different the Texas Railroad Commission’s administrative process is from other agencies’.TexasBarToday_TopTen_Badge_Small

Many disputes in Texas are resolved not in trial courts but by administrative hearings. In many cases, the law that governs those hearings is the Administrative Procedure Act, found at Chapter 2001 of Texas’ Government Code. The hearings are held before an administrative law judge (ALJ) who works for the State Office of Administrative Hearings (SOAH). If two parties get into a dispute in which the law requires adjudication by an administrative hearing, an evidentiary hearing is held before an ALJ who hears testimony, takes evidence, and prepares a Proposal for Decision (PFD). The PFD then goes before the board of the responsible agency, which either adopts the PFD or makes changes, and issues a final order. That order can then be appealed to a state district court in Travis County. The district court acts as an appellate body, and must uphold the decision if it is supported by “substantial evidence” in the record from the administrative hearing and otherwise complies with the governing law.

The APA limits the grounds on which an agency can change a PFD and requires the agency to explain its reasons for doing so. APA section 2001.058(e) provides:

A state agency may change a finding of fact or conclusion of law made by the administrative law judge, or may vacate or modify an order issued by the administrative judge, only if the agency determines:

(1) that the administrative law judge did not properly apply or interpret applicable law, agency rules, written policies provided under Subsection (c), or prior administrative decisions;

(2) that a prior administrative decision on which the administrative law judge relied is incorrect or should be changed; or

(3) that a technical error in a finding of fact should be changed.

The agency shall state in writing the specific reason and legal basis for a change made under this subsection.

Two cases, both from the Austin Court of Appeals, are appeals of orders by administrative agencies. Hyundai Motor America v. New World Car Imports San Antonio, Inc., No. 03-17-00761-CV, is an appeal of a decision by the Board of the Texas Department of Motor Vehicles. The case involves the obscure laws that govern the relationships between car manufacturers and their dealers.

In Hyundai, the Board of the Texas Department of Motor Vehicles did not accept the PFD of the ALJ, but made changes in the PFD, modifying certain findings and conclusions. Its decision favored New World Car. Hyundai appealed, arguing that the TDMV Board violated APA Section 2001.058(e) by changing findings of fact that were not merely “technical errors,” and by failing to justify in writing the reasons and legal basis for its changes.

The Court of Appeals held that the TDMV Board had violated Section 2001.058(e):

An ALJ is a “disinterested hearings officer” to whom the legislature has delegated the duty of basic fact-finding. … An agency cannot frustrate the delegation of the fact-finding role by ignoring an ALJ’s “findings with which it disagrees and substitut[ing] its own additional findings.”

The other recent Austin Court of Appeals case is Dyer v. Texas Commission on Environmental Quality, No. 03-17-00499-CV, an appeal of a decision made by the TCEQ on a contested application by TexCom Gulf Disposal for a permit to drill and operate injection control wells for the disposal of non-hazardous industrial waste in Montgomery County. The permit was opposed by Montgomery County, the City of Conroe, and several individuals, who contended that the wells would jeopardize groundwater, and by Denbury Onshore, LLC who operated oil and gas wells in the area and argued that the disposal wells would interfere with its production of oil and gas. The hearing before the ALJ was held in December 2007. The ALJ’s PFD proposed to deny the requested permit, but the TCEQ in 2011 approved TexCom’s application, substantially modifying the ALJ’s proposed findings of fact and conclusions of law.

On appeal, the permit’s opponents argued that the TCEQ had violated APA section 2001.058(e) in modifying the PFD. But TexCom argued that TCEQ’s right to modify the PFD was governed by a different statute that specifically addresses hearings for the TCEQ, Section 2003.047, which provides: “The commission my 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. Such amendment by the commission shall be accompanied by an explanation of the basis of the amendment.” The Court of Appeals held that this statute controlled, and that the TCEQ had complied with its less onerous provisions in modifying the PFD.  The dissent argued that the requirements of section 2001.058(e) do apply to the TCEQ:

In granting the permits, the TCEQ essentially disregarded the ALJs’ findings without providing any meaningful reasoning for its decision, a decision the trial court affirmed. The majority upholds the TCEQ’s actions only by jettisoning some of the requirements that the TCEQ must follow in changing an ALJ’s fining of fact or conclusion of law.”

The Texas Railroad Commission also conducts administrative hearings on disputes that come before it. But unlike other agencies, its hearings are not conducted before ALJs at SOAH, but by ALJs who are employees of the RRC. So a RRC ALJ is not a “disinterested hearings officer,” but an employee of the agency whose responsibility it is to enforce the laws that are the subject of the administrative hearings. Also, the RRC is not subject to section 2001.058(e) of the Administrative Procedure Act. So its commissioners can change findings of fact and conclusions of law in a PFD without providing any reasoned justification for those changes. Although efforts have been made in the past to amend the law so that RRC administrative hearings are conducted by SOAH, those efforts have been unsuccessful. In my opinion, these differences greatly affect the decisions made by the RRC.

The third recent case, from the U.S. District Court, Southern District of Texas, Judge Kenneth Hoyt, is San Antonio Bay Estuarine Waterkeeper v. Formosa Plastics Corp., Civil Action No. 6:17-CV-0047. Plaintiffs sued claiming that Formosa Plastics’ plant illegally discharged plastic pellets and PVC power into Lavaca Bay in violation of the Clean Water Act. The case is not an appeal of an administrative order but does shed light on how environmental laws are enforced (or not) by a Texas state agency.

The Clean Water Act requires any company discharging a pollutant into waters of the US to obtain a discharge permit that meets the requirements of the Act. The Act provides that the Environmental Protection Agency can delegate the responsibility for issuing and enforcing discharge permits to a state that creates a system for granting and enforcing permits in compliance with the Act. That authority in Texas was granted to the Texas Commission on Environmental Quality (TCEQ). The TCEQ granted a discharge permit to Formosa Plastics beginning in 1993; the permit had to be renewed every ten years. Waterkeeper’s suit claims that Formosa has continually violated its permit and seeks monetary damages, attorneys’ fees and injunctive relief. In the court’s order of June 27, it found after an evidentiary hearing that Formosa had indeed continually violated its permit by discharging substantial amounts of plastic pellets and PVC powder into the bay. Later hearings will determine the relief to be granted.

In January 2019 Formosa and TCEQ signed an agreed order adjudicating certain violations of Formosa’s permit. Formosa agreed to a penalty of $121,875. Before Judge Hoyt Formosa argued that the agreed order resolved Waterkeeper’s complaints and made the case moot. Judge Hoyt disagreed:

The violations adjudicated in the Agreed Order, represented six violation events between April 4, 2017 to May 17, 2017. These violations are comprised of two events at each of three outfalls … Based on the overwhelming evidence, the TCEQ’s findings and assessment merely shows the difficulty or inability of the TCEQ to bring Formosa into compliance with its Permit restrictions.

Judge Hoyt concluded that Formosa is a “serial offender,” violating its permit from January 31, 2016 through March 24, 2018 – some 1,149 days of violations. Waterkeeper seeks $184 million in fines for Formosa’s violations, to be paid to the federal government.

It is not widely known that the EPA delegates most of its enforcement responsibilities to states. TCEQ is one of the largest state agencies in the country responsible for enforcing federal environmental laws. Some of EPA’s enforcement responsibilities under the Clean Water Act are delegated not to the TCEQ, but to the RRC. Violations resulting in pollution of surface and groundwater by oil and gas production operations are the responsibility of the RRC.

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