Striking When the Iron is Cold

Jenna Greene

Corporate Counsel

02-01-2013

For years, Royal Dutch Shell and environmental groups have been locked in an almost ritualized dance of litigation. Step-by-step, Shell has won federal approval for plans to drill for oil in the Arctic Ocean. And at each turn, conservationists have protested that the permits are improper and sued the government to block them.

But last year, with permits finally in hand to drill the first exploratory wells in the Beaufort and Chukchi seas on the Alaskan Outer Continental Shelf, Shell didn't wait for what it called the "virtual certainty" of an 11th-hour suit to derail its plans. Instead, it launched a preemptive strike, filing three suits against 13 environmental groups and asking the court to pronounce the permits valid up front.

It's an unprecedented move. And if it succeeds, lawyers say it could turn administrative litigation on its head, unleashing a flood of suits seeking court approval of agency actions before they're even challenged. And so far, Shell's tactic is working. In June an Alaska federal judge, Ralph Beistline, refused to dismiss the first complaint, ruling in an issue of first impression that if the environmental groups can sue to block the permits, then it "stands to reason" that Shell ought to be able to sue to uphold them.

The environmental groups are appalled. They've asked the U.S. Court of Appeals for the Ninth Circuit to take the rare step of reviewing a district court order while the lower court case is ongoing. "These cases are an improper use of the judicial system," says Michael LeVine, who is a senior counsel for Oceana, one of the groups being sued. "Shell has tried to do an end run around the proper procedure, and has effectively sought to use the courts to penalize public interest organizations for participating in public processes regarding ocean resources."

It all began in 2008, when Shell paid the U.S. Department of the Interior $2 billion for oil and gas leases in the Chukchi Sea, on top of the $74 million it had paid for development rights in Beaufort's Camden Bay. The company has spent close to $3 billion more on project planning and execution, and has yet to pump a drop of oil.

Winning regulatory approval to drill has been one of the most difficult and time-consuming aspects of the project. In court papers, Shell puts much of the blame on the environmental groups. Acting alone or in combination, conservationists have filed four suits objecting to air permits awarded to Shell; four suits opposing Shell's exploration plans; and eight others. Some are ongoing, others have been dismissed.

In February 2012 the Interior Department approved Shell's Chukchi Sea oil spill response plan. The following month the government gave Shell's Beaufort spill plan a green light. The approvals "permit Shell to proceed with its exploration activities," according to Shell's complaint.

Poised at last to begin drilling, Shell and its lawyers sued the 13 organizations in federal district court in Alaska. They asked the court to issue a broad declaratory judgment that its oil spill response plans are valid and comply with relevant laws.

The environmental groups seemed almost flabbergasted. "Apparently unsatisfied with the process Congress provided for judicial review of agency action, Shell now asks this court to disregard those requirements—and to exceed its jurisdiction—for the sake of Shell's convenience," reads the first sentence of their motion to dismiss, filed by Keker & Van Nest partner Rachael Meny. The oil company has "asked this court to ignore all jurisdictional and procedural requirements simply because Shell wants to begin drilling quickly," Meny's motion states.

The fundamental problem, Meny argued, is that Shell doesn't face any liability over the validity of its oil spill response plans. The Department of the Interior is the one on the hook, and that's the party the environmental groups would sue. "Shell's suit is, at its core, an attempt to obtain an advisory opinion about the outcome of hypothetical litigation," she wrote.

But Beistline didn't buy it. He denied the motion to dismiss, reasoning that Shell has standing because, if the environmental groups successfully challenged Shell's permits, that "would constitute an injury-in-fact to Shell."

Shortly after his decision, 10 of the environmental groups did indeed sue the government in a bid to invalidate Shell's oil spill response plans. They also asked Beistline to certify his order for an immediate review by the Ninth Circuit.

In September he agreed—grudgingly. "The court understands that the Ninth Circuit is without controlling precedent concerning the instant matter," he wrote. But in bold type, he also stated that he did not personally believe "exceptional circumstances" exist to merit such a review.

At press time the Ninth Circuit had not yet said whether it would review the order. Shell lawyers argue that there is little reason to do so, since the suit ­challenging the permits has been ­consolidated with their bid for a declaratory judgment. Regardless, the lower court will review Shell's oil spill plans.

Still, there is the question of precedent. Baker & Hostetler partner Christopher Marraro, who is not involved in the case, says that the decision, if it stands, could "have great utility in the energy project area," where litigation risk plays a large role in the decision to finance projects.