UNITED STATES ENVIRONMENTAL PROTECTION AGENCY

                     WASHINGTON, D.C. 20460

                        December 29, 1992

MEMORANDUM                              OFFICE OF ENFORCEMENT

SUBJECT:  Opinion in U.S. v. AM General Corporation,
          Civ.  No. S87-377 (N.D. Ind.  Dec. 14, 1992)

FROM:     Karen Schapiro

TO:       NSR Contacts

     On December 14, 1992, the U.S. District Court for the
Northern District of Indiana issued a decision in the above-
captioned case granting the defendant's motion for summary
judgment on the government's complaint.

     The Court's decision is significant,because this is the
first case testing the power of EPA to challenge a deficient New
Source Review (NSR) permit pursuant to SS 113(a)(5), (b)(5)1 of
the Clean Air Act.  In brief, the decision holds that SS  113(a)(5)
authorizes EPA to bring civil judicial enforcement action under
subsection (b)(5) when a state issues a permit that fails to  meet
NSR requirements.  Slip op. at 23.  The decision  restricts  use 
of subsection (b)(5), however, to cases where EPA makes a formal -
Finding of Violation to the state before the source "attempts"  to
construct or modify.  Slip. op. at 24.

     As you know, EPA often does not receive state permits prior
to the time a source commences to construct or modify.  Thus,
this Court's interpretation of SS 113(b)(5) -- requiring EPA to
make a Finding of Violation before construction commences --
potentially undermines the ability of the Agency to sue holders
of defective permits.  To mitigate the-potentially adverse
effects of the decision, however, is the fact that the Court did
not decide that issuance of a formal Finding of Violation is a
prerequisite to issuance of administrative orders under
SS 113(a)(5).

     The EPA and DOJ lawyers assigned to this case have filed a
motion for reconsideration of the Court's judgment.  I  will  alert
you to new developments as the case progresses.  Meanwhile,
Regions are reminded that this decision is not binding on other
courts and that our policy continues to encourage challenges to
deficient state permits.

     1 The United States brought this case pursuant to  the  Clean
Air Act of 1977.  Under the 1990 Act, SS 113(b)(5) is now at SS
113(b)(3). See 42 U.S.C. SS 7413(b)(3) (1992 Supp.).

                                                                  
                               -2-

Background

     EPA brought enforcement against the defendant on July 27,
1987, for violating NSR requirements of the Indiana SIP and Clean
Air Act.  The complaint alleged that the  defendant  made  a  major
modification to its Mishawaka, St. Joseph's County, Indiana plant
without obtaining a proper NSR permit.  The St. Joseph County
Health Department (SJCHD) had issued a permit authorizing the
modification, but EPA determined that the permit was deficient
because it did not  comport  with  NSR  requirements. 
Specifically, EPA found that the permit failed to require the
defendant to apply the "lowest achievable emission rate" (LAER) to
limit emissions of VOC.

     The defendant counterclaimed, alleging that the  EPA  was  in
violation of SS 107(d) of the Act because it had  failed  to
consider within 60 days of submittal a request  from  the  State 
of Indiana to redesignate St. Joseph's  County  from  a 
non-attainment area for ozone to an attainment area.  The 
defendant sought the Court to order EPA to rule on the
redesignation request.

     On October 5, 1987, the defendant  moved  for  summary
judgment on its counterclaim and on  the  government's  complaint.
The defendant argued that EPA's failure to act on the
redesignation request within 60 days of submittal barred the
Agency from enforcement.  on September 21, 1990, the Court issued
an order denying the motion.  Relying on the decision of the
Supreme Court in General Motors Corp, v. U.S., 496 U.S. 530
(1990), the Court found that the Clean Air Act did not impose
upon EPA a mandatory duty to consider  Indiana's  request  no 
later than 60 days after submittal.  The Court also  held  that 
EPA  was entitled to enforce the existing SIP until it approved a
revision.  U.S. v. AM General Corp.,  Civ.  No.  S87-377M,  slip 
op. at 9 (N.D. Ind.  Sept. 21, 1990).

     The defendant moved for summary judgment  again  in  November
df 1990.  Relying largely on the opinion 'in  U.S. v. Solar
Turbines  732 F. Supp. 535 (N.D. Pa.  1989),  the  defendant 
argued that EPA's action amounted to an  impermissible  attempt  to
veto a state permit under SS 113(b).2  The defendant also raised
two jurisdictional arguments:  (1) EPA lacked power to enforce in
federal court because it had not first exhausted state
administrative remedies; and (2) EPA  was  barred  from 
enforcement because the NOV was invalid in that it  was  based  on 
insufficient evidence of a violation; was not based on  a  ruling 
by the state

                               -3-

     2  In Solar Turbines, the Court held that SSSS 113(b)(1)  and
167 of the Act do not authorize enforcement against a source
owner that constructs in accordance with a prevention of
significant deterioration (PSD) permit issued by a state pursuant
to a SIP-approved program.

that the permit was invalid; and was not issued in accordance
with requirements of the Administrativ6 Procedures Act.

     In response to the defendant's motion, the government
argued that this case was easily distinguishable from Solar
Turbines:  EPA was suing under the 1977 Act pursuant to
SS 113(a)(5), (b)(5), not SSSS 113(b)(1) and 167, as in Solar
Turbines. The government contended that SS  113(a)(5)  specifically
authorizes enforcement under subsection (b)(5) whenever EPA finds
that a state is violating NSR requirements.  In  this case, EPA had
found that the SJCHD was violating NSR  requirements because it
issued a permit that failed to demand that the defendant apply
LAER.. The government further contended that the NOV was sufficient
and that, in any event, issuance of a NOV was not a jurisdictional
prerequisite in an action initiated under
subsections (a)(5) and (b)(5).

     In addition to,responding  to defendant's motion, the
government moved for judgment on the pleadings with  respect to
the defendant's request for injunctive relief on its
counterclaim.  The government argued that  the  defendant's 
request that the Court compel EPA to act on the redesignation 
request was moot in light of the 1990 Amendments to the Clean Air
Act.

The Decision

                                 Enforcement Issues

     First, the Court determined whether jurisdictional
requirements had beeh met.  Finding no authority  to  support  the
contention that EPA was required to pursue  state  administrative
channels before proceeding in federal court, the  Court  rejected
the defendant's argument that jurisdiction was  lacking  because
EPA failed to exhaust state or administrative  remedies.  Slip  op.
at 15-16.  Moreover, the Court held that the defendant's
challenges to the NOV were not  jurisdictional  arguments;  rather,
they were defenses to the merits of the  government's  claim.  Slip
op. at 18-19.  The Court noted that EPA had issued  the defendant
a NOV alerting it to violations of the applicable SIP  more than
thirty days before it filed its complaint.  The Court further noted
that the complaint alleged that the violation persisted more than
30 days after the NOV was issued.  Thus, the Court determined that
EPA had satisfied jurisdictional  prerequisites of SS 113(a)(1).

     The Court next considered whether SS 113 authorized
enforcement against the defendant.  In reaching  its  decision, 
the

     3  Note that the opinion does not hold that issuance  of  a
NOV is a prerequisite to enforcement under SS 113(a)(5), (b)(5).

                               -4-

     Court agreed with the government that SS 113(a)(5) allows EPA
to take enforcement pursuant to subsection (b)(5) when it finds
that a state permit does not properly subject a source to non-
attainment NSR requirements.Slip op. at 23.  The Court
determined, however, that EPA was barred from enforcing against
the defendant in this case because it issued a Finding of
Violation to the SJCHD after the defendant made the modification;
the Court interpreted subsection (b)(5) to require EPA to make a
formal Finding of Violation to the state before the source
"attempts" to construct or modify pursuant to the permit.  Slip
op. at 23-29.  Accordingly, the Court entered judgment in favor
of the defendant on the complaint.

                        Defensive Issues

     The Court also ruled on the government's motion for judgment
on the defendant's counterclaim and the defendant's motion for
reconsideration of the Court's Order of September 21, 1990.  The
Court determined that the counterclaim was moot in light of the
1990 Amendments to the Clean Air Act, which set forth new
standards for achieving attainment status for ozone.  The Court
also held that the Amendments rendered moot the motion for
reconsideration.  Thus, the Court granted judgment in favor of
the government on the defendant's counterclaim and denied the
defendant's motion for reconsideration.  slip op. at 29   32.

cc:  Elliott Gilberg
     David Rochlin

Attachment