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Texas Supreme Court Reviews Emission Credit Suit v TCEQ, October 11, 2017

The Law Office of C. William Smalling, P.C. Oct. 15, 2017

Texas Supreme Court justices on Wednesday October 11 reviewed interior and exterior coating manufacturer AC Interests, which argues that a lower appellate and trial court wrongly dismissed its lawsuit against the Texas Commission on Environmental Quality after it missed the 30-day deadline to notify the agency of the suit.

In its April 2016 petition for review, AC Interests argued it was an abuse of discretion to dismiss the suit against the state environmental agency, because the 30-day deadline isn't mandatory, but “directory.” The suit — brought regarding AC's right to certain emissions credits from the TCEQ — shouldn't have been dismissed because the agency wasn't “prejudiced by the delay,” and in fact was hand-delivered notice of the suit two days after it was filed in December 2014.  

AC Interests told the court that the Texas Rule of Civil Procedure 91a motion to dismiss — which allows dismissal of claims that have no basis in law or fact — should not have been granted because it “included no basis in AC Interests' pleadings.”  

The petition stated “In other words, the trial court and Court of Appeals [are] applying the 30-day service of citation rule to AC Interests, while allowing the TCEQ to escape the requirements of proving up the Rule 91a motion, which the TCEQ elected to file."  

“A conclusion that the service deadline is directory is especially compelling when we consider the alternate consequences. Under the alternate interpretation, any delay in service of citation for any reason results in the dismissal of the case,” the petition reads. “This result is particularly harsh given the relatively short deadline for service and the fact that service may be delayed by circumstances outside the control of the plaintiff. We do not believe that the service deadline was 'intended to create a procedural trap allowing the [commission] to obtain dismissal' when service has been diligently pursued and the commission has not been prejudiced by the delay."  

AC Interests filed its lawsuit after the TCEQ denied its application for certification of the emission credits. AC argued it deserved the credits because it had complied with TCEQ standards, earning the credits by “emitting fewer toxins into the water and air.”  

Lower courts had dismissed the lawsuit filed by AC Interests LP because the company, which makes interior and exterior coatings, failed to get formal service of process against the TCEQ within a 30-day deadline. But AC Interests argues that was an abuse of discretion because it hand-delivered notice of the suit to the agency just a few days after the suit was filed and served the agency with a formal citation of the lawsuit 58 days after it was filed.

In oral argument, the justices asked whether there should be a consequence less serious than dismissal of the case because the TCEQ did have some notice of the lawsuit, even though the agency wasn’t served in the 30-day deadline set forth in the Texas Clean Air Act.

“The statute does not prescribe the consequences,” Justice John Devine said. “So why should we elect the harshest consequence first?”

Justice Debra Lehrmann said even if compliance with the 30-day deadline is mandatory, that doesn’t mean the court should impose the most extreme consequence on a party that fails to meet it. And Justice Eva Guzman asked whether the TCEQ was prejudiced in any way by the company’s delay in serving the agency with a copy of its lawsuit.

Arguing for AC Interests, Bill Smalling of The Law Office of C. William Smalling PC asked that the case be remanded to the trial court for consideration of the merits of its emissions credits claim. He argued dismissal is not required when a plaintiff can show the substantial purpose of the statute has been met and the TCEQ was not prejudiced by the delay.

Justice Lehrmann asked Smalling what a lesser consequence than dismissal could be. If the court finds that because the CAA is silent on consequences and the court determines it should impose the least-punitive remedy, what would that remedy look like, she asked. And Justice Guzman asked whether a lesser consequence, like abatement of the lawsuit until the TCEQ had been served, would be appropriate.

Smalling said the only thing he can think of is that the case revert back to the trial court for consideration on the merits of AC Interests’ emissions credit application.

Smalling also argued the court can look to the Texas Water Code — which gives litigants one year to secure service of process on the agency — instead of the Clean Air Act. Smalling argued that because AC Interests filed its suit under the Water Code, it should have a year to serve the agency, a deadline it easily met.

The TCEQ is represented by Heather Gebelin Hacker, Priscilla M. Hubenak, Anthony C. Grigsby, James E. Davis, Brantley D. Starr, Cynthia Woelk, Jeffrey C. Mateer and Ken Paxton of the Texas Attorney General's Office.

AC Interests is represented by Bill Smalling of The Law Office of C. William Smalling PC.

The case is AC Interests LP v. Texas Commission on Environmental Quality, case number 16-0260, in the Texas Supreme Court.