3M Co. v. Dep't of Env't Great Lakes & Energy

Court of Claims LC No. 21-000078-MZ.

Before: GADOLA, P.J., and MURRAY and MALDONADO, JJ.

MURRAY, J.

The sole issue in this appeal is whether the trial court erred in holding that the Department of Environment, Great Lakes, and Energy (EGLE), violated Section 45 of the Administrative Procedures Act of 1969 (APA), MCL 24.201 et seq., which requires agencies to prepare a regulatory impact statement (RIS) that includes an estimate of how much compliance with the proposed rules will cost "businesses and other groups." MCL 24.245(3)(n). For the reasons explained below, we conclude that the trial court did not err, and we therefore affirm its order granting summary disposition in favor of plaintiff.

I. BACKGROUND

At issue is a new set of rules promulgated by EGLE that regulate the permissible levels of per- and polyfluoroalkyl substances (PFAS) in drinking water pursuant to Section 5 of the Safe Drinking Water Act (SDWA), MCL 325.1001 et seq.^[1] It is undisputed that implementation of these rules causes changes to groundwater-cleanup standards pursuant to Part 201 of the Natural Resources and Environmental Protection Act (NREPA), MCL 324.101 et seq.^[2] This is because

groundwater-cleanup standards are tied to drinking water rules; therefore, any changes to the drinking water rules also cause a change to the groundwater-cleanup rules.

A lengthy administrative process took place prior to the implementation of these rules. In March 2019, a Science Advisory Workgroup was established to review existing and proposed drinking-water standards for PFAS. A month later, the Workgroup indicated that more than 70 sites were being investigated for contamination for two specific PFASs: perfluorooctane sulfonate (PFOS) and perfluorooctanoic acid (PFOA). Soon after, EGLE proposed to create rules to establish enforceable drinking-water standards for PFAS. In doing so, EGLE indicated that the United States Department of Environmental Quality had designated health-advisory levels for PFOS and PFOA, but EGLE determined that the lack of enforceable standards for those chemicals and other PFAS impaired its ability to act to protect human health and the environment. Thus, a new ruleset was proposed, designated as 2019-35 EG, or "Supplying Water to the Public," which was to add additional drinking water standards and related sampling and response requirements.

In October 2019, EGLE's Drinking Water and Environmental Health Division submitted an RIS for proposed ruleset 2019-35 EG. In the RIS, the primary costs to state and local governmental units were identified as arising from sampling and monitoring requirements and the installation and operation of treatment systems where PFAS exceeded the maximum contaminant levels. Regarding costs imposed on businesses and groups, EGLE addressed only businesses that operated their own water supplies and estimated the following:

Government	Businesses
Unit Cost	Annual	Unit Cost	Annual
Sampling cost	$300 per sample	$3.2 mil	$300 to $600 per sample	$4 mil
Treatment cost	$8 per gal	$7.4 mil
Maintenance cost	$0.35 per gal	$325,000	$7,000
Installation of treatment	one time $920,000

The costs were to be the same for businesses and other groups except that sampling would cost $600 per sample if the business or group hired an outside contractor rather than doing the sampling itself.

After an October 2019 meeting of the Environmental Rules Review Committee, EGLE's Regulatory Affairs Officer, David Fiedler, responded to a question regarding the estimated impact on small businesses and other stakeholders "when the PFOA and PFOSs criteria are changed under Part 201" by stating:

If an entity is responsible for either causing a PFAS release or being responsible for the due diligence associated with a PFOS or PFOA release under Part 201, then they would be obligated to meet these standards. This impact will vary depending on the PFOS or PFOA concentration, media effected [sic], and extent of contamination. Because of this variability, it is not practical to determine the impact of this change. Even if it was, this impact is a result of current statutory applicability not a regulatory requirement.

The next month, a second RIS was prepared. The revised RIS recognized that the new surface water standards would alter the standards for groundwater cleanup: "There are surface water

standards and groundwater-cleanup standards. The groundwater-cleanup standards for PFOA and PFOS will be changed as a result of the rule."

Public hearings were held on 2019-35 EG in January 2020, and the Review Committee approved a final draft of the rules in February. The Office of Regulatory Reinvention, an office within the Department of Licensing and Regulatory Affairs, MCL 445.2031(I)(A), approved the proposed drinking-water rules after determining that they were within the scope of EGLE's authority, did not violate constitutional requirements, and conformed to APA requirements. The Joint Rules Committee did not act on the proposed rules during the 15 session days following their receipt, making the rules effective on August 3, 2020. See MCL 24.245a(1), (3).

3M Company subsequently filed suit seeking declaratory and injunctive relief regarding the drinking-water standard's rules for PFAS. According to 3M Company, EGLE had not fully accounted for all costs associated with the rules, as it had not estimated costs for businesses to comply with the related groundwater-cleanup standards that automatically result from the new drinking water rules. Because every RIS was required to contain an estimate of the compliance costs for businesses and other groups, EGLE's RIS was deficient as it had not accounted for costs resulting from changes to the separate, but related, groundwater-cleanup standards. Accordingly, 3M Company asserted that EGLE had not complied with the APA-based RIS requirements, and the drinking water rules were invalid.

The parties filed competing motions for summary disposition pursuant to MCR 2.116(C)(10). After a hearing, the Court of Claims issued a thorough opinion and order granting summary disposition in 3M Company's favor and declaring the new drinking water rules invalid. Although the court determined that most of 3M's arguments did not carry the day, the court held that the RIS was deficient for lack of a cost estimate for groundwater cleanup, reasoning:

Specifically, nowhere in the Part 201 RIS did the Department address any cleanup or compliance costs that a business or group would incur as a result of the PFAS rules. In fact, it was the exact opposite-the Department actually relied on the criteria set for PFOA and PFOS as a result of the SDWA-rulemaking process to justify its decision to ignore any cleanup and compliance costs faced by businesses and groups with respect to the other five PFAS substances under Part 201. Thus, the costs to businesses and groups of complying with the PFOA and PFOS groundwater criteria were never considered in either rulemaking proceeding, and the Department asserted in the Part 201 RIS that regulating the other five PFAS would not lead to additional costs because those costs would already be incurred due to the PFOA and PFOS rules.

A court must give a certain amount of deference to an administrative department's rulemaking process. Brang, Inc v Liquor Control Comm, 320 Mich.App. 652, 661; 910 N.W.2d 309 (2017). But judicial deference is not infinitely elastic-our Legislature has made clear that, when promulgating a rule, administrative departments must comply with certain standards, and one of those is estimating "the actual statewide compliance costs of the proposed rule on businesses and other groups" and including that information in the regulatory-impact statement. MCL 24.245(3)(n). A department cannot skirt this statutory

requirement during Rulemaking A by promising to address the costs later