ExxonMobil Pipeline Co. v. United States Department of Transportation
2017 U.S. App. LEXIS 15144
| 5th Cir. | 2017Background
- The 859-mile Pegasus Pipeline, owned and operated by ExxonMobil, ruptured near Mayflower, Arkansas in March 2013, releasing several thousand barrels of crude oil.
- PHMSA investigated and issued a final order finding multiple violations of integrity-management regulations (49 C.F.R. § 195.452), assessing $2.63 million in penalties and issuing a compliance order.
- Central regulatory requirement: operators "must consider" a list of risk factors (including seam type, manufacturing info, and leak history) when prioritizing assessment schedules; if LF-ERW pipe is determined "susceptible" to longitudinal seam failure, assessment methods must detect seam integrity problems (§ 195.452(j)(5)).
- ExxonMobil repeatedly applied the Baker Report decision-tree (and retained its co-author Dr. Kiefner) and concluded the Pegasus segment was not susceptible to longitudinal seam failure despite past seam-related test failures, because those failures lacked evidence of pressure-cycle fatigue or selective seam corrosion.
- PHMSA concluded ExxonMobil improperly considered seam-failure risk (relying on the history of seam failures), citing Items 1–9; ExxonMobil appealed, challenging Items 1–4, 7, and 8; Items 5, 6, and 9 were not contested.
- The Fifth Circuit reviewed under the APA arbitrary-and-capricious standard, vacated Items 1–4 and 7, affirmed Item 8 but remanded for penalty reassessment for Item 8, and vacated associated penalties for the vacated items.
Issues
| Issue | Plaintiff's Argument (ExxonMobil) | Defendant's Argument (PHMSA) | Held |
|---|---|---|---|
| Meaning of "consider" in § 195.452(e)(1) | "Consider" is process-based: requires careful, good-faith analysis but not a compelled outcome; ExxonMobil complied using Baker decision tree | The agency reads "consider" to require treating the history of seam failures as indicating susceptibility; its interpretation deserves Auer deference | Court: "consider" is unambiguous process-based requirement; no Auer deference; ExxonMobil complied; agency action arbitrary and capricious (vacated Items 1–4, 7) |
| Reliance on industry guidance (Baker Report) | Reliance on Baker decision-tree (endorsed by PHMSA) gave ExxonMobil fair notice and was a reasonable methodology | Agency asserts decision tree was insufficient (e.g., didn’t address low toughness) and ExxonMobil unreasonably discounted past seam failures | Court: Baker decision-tree was an acceptable, industry-recognized method; ExxonMobil reasonably applied it; agency’s contrary interpretation was post hoc and deprived ExxonMobil of fair notice |
| Validity of Item 8 (failure to follow written IMP/TIARA entry) | Generally argued Item 8 should fall with other vacated items; also noted later use of a seam/crack tool failed to detect the defect | PHMSA: ExxonMobil misrepresented that a TFI/UT tool had been run and failed to correct TIARA entries, violating written procedures (§ 195.452(b)(5)); contends this had contributory impact on the spill | Court: Affirmed Item 8 (ExxonMobil failed to follow its written IMP/TIARA procedures), but held agency erred in finding Item 8 was a causal factor in the spill; remanded for penalty reassessment for Item 8 |
| Penalty assessment (aggregate cap and Item 8 gravity) | Total penalty should be capped at $1M under prior statute; Item 8 penalty increase improper because the TIARA misrepresentation did not cause the spill | PHMSA applied updated statutory cap ($2M for related series after 2012) and increased Item 8 penalty based on alleged contributory role in spill | Court: $2M cap applies where separate violations continued post-2012; vacated penalties for Items 1–4 and 7; remanded Item 8 penalty because agency’s finding of causal impact was unsupported and arbitrary |
Key Cases Cited
- Auer v. Robbins, 519 U.S. 452 (1997) (deference to an agency’s interpretation of its own ambiguous regulation)
- Christensen v. Harris County, 529 U.S. 576 (2000) (Auer deference inappropriate where regulation is unambiguous)
- Seminole Rock & Sand Co. v. United States, 325 U.S. 410 (1945) (agency interpretations of its own regulations given controlling weight unless plainly erroneous)
- Christopher v. SmithKline Beecham Corp., 567 U.S. 142 (2012) (fair notice limits application of Auer deference in penalty cases)
- Pension Benefit Guaranty Corp. v. Wilson N. Jones Mem’l Hosp., 374 F.3d 362 (5th Cir. 2004) (arbitrary-and-capricious review focuses on rational connection between facts and agency decision)