Opinion ID: 202809
Heading Depth: 1
Heading Rank: 5

Heading: the state's financial assurance requirement

Text: The parties again disagree on the proper frame of analysis of the state's financial assurance statute and its exception. Nonetheless, the parties do agree that the analysis here is different from that of the other regulations at issue because Congress (through its enactment of OPA) has expressly saved the states' power to establish liability rules and related requirements. See 33 U.S.C. § 2718. Indeed, the Supreme Court has clarified that OPA did not preempt state power to establish liability rules and financial requirements relating to oil spills. Locke, 529 U.S. at 105, 120 S.Ct. 1135. MOSPA's financial assurance requirement has two relevant parts, one of which is under attack, and the other of which is conceded not to be preempted (assuming it is severable). In pertinent part, the state statute provides: (a) Any vessel, whether or not self-propelled, in or entering upon the waters of the commonwealth for the purpose of transporting, discharging or receiving a cargo of oil, hazardous material, or hazardous waste, shall be subject to the financial assurance requirements and penalty authority as provided in subsections (b) to (d), inclusive. (b) A certificate of financial assurance obtained individually or jointly by the vessel, its owner or agent, its charterer, or by the owner or operator of the terminal at which the vessel discharges or receives its cargo, shall be provided to the department in the amount of at least $1,000,000,000. Vessels with a capacity of less than 6,000 barrels shall present a certificate of financial assurance to the department of environmental protection in the amount of $5,000,000. A copy of the financial assurance shall be posted on the vessel. (c). . . . (d) The department may allow financial assurance in a lower amount based upon criteria that includes, but is not limited to, the type and amount of the above cargo transported by the vessel; the size and construction of the vessel, including whether the vessel is double hulled; the safety record of the vessel or the vessel owner, the loss or accident history of the vessel or vessel owner involving maritime spills and the safety equipment used by the vessel. The financial assurance shall be in a form approved by the department. Mass. Gen. Laws ch. 21, § 50C. The United States concedes that, standing alone, the provisions for the $1 billion and $5 million financial assurance certificates (subsections (a) and (b)) are within the state's power under OPA's savings clauses, 33 U.S.C. § 2718(a)(1), (c). [27] The dispute is over section 50C(d), which provides that the state Department of Environmental Protection may lower the amount of the bond according to certain criteria, some of which are defined by statute. The specified criteria include: the type and amount of cargo transported . . .; the size and construction of the vessel, including whether the vessel is double hulled; the safety record of the vessel or the vessel owner; and the vessel's safety equipment. Mass. Gen. Laws ch. 21, § 50C(d). The department is also given discretion to use other criteria. Id. There are two relevant OPA savings clauses. The first, 33 U.S.C. § 2718(a)(1)(A), provides: Nothing in this Act . . . shall  (1) affect, or be construed or interpreted as preempting, the authority of any State or political subdivision thereof from imposing any additional liability or requirements with respect to  (A) the discharge of oil or other pollution by oil within such State. . . . The second clause, 33 U.S.C. § 2718(c)(1), provides: Nothing in this Act . . . shall in any way affect, or be construed to affect, the authority of the United States or any State or political subdivision thereof  (1) to impose additional liability or additional requirements [relating to the discharge, or substantial threat of a discharge, of oil]. . . . These clauses in OPA do not define requirements. The clauses save state laws from preemption by OPA's Title I, but not from OPA's other titles, or from other federal statutes. Locke, 529 U.S. at 106, 120 S.Ct. 1135. The United States asserts that MOSPA is problematic because the exceptions in section 50C(d) encompass criteria at the core of PWSA's Title II. [28] Moreover, the state statute merely provides that the criteria are to be administered by the state agency, and it offers no further guidance. The United States asserts that the state may not regulate indirectly what it cannot regulate directly under Title II. The state and the Coalition acknowledge that an indirect regulation argument might survive Ray. Ray did consider such an indirect regulation theory, although there the theory did not concern a state financial, assurance certification under OPA's savings clauses. See 435 U.S. at 173 & n. 25, 98 S.Ct. 988 (inquiring whether a state's tug escort rule indirectly regulated primary conduct, and rejecting that possibility on the facts presented). Nonetheless, even assuming arguendo that some theory of impermissible indirect regulation is viable even in a savings clause case, the United States has not to date met its burden on its argument that the statute is not within the powers reserved to the states. In this case, the two sides take fundamentally different views of what constitutes impermissible indirect regulation. There is a lack of clarity regarding the exact nature of both the United States' claim and the state's defense. The issue can be viewed as a spectrum problem. On the one hand, there is the state's statutory choice to establish a financial assurance program, the cost of which may be reduced by criteria which are attuned to degree of risk. Such gradations are common to most insurance schemes. On the other hand, there is a federal fear that implementation of this scheme will lead to state regulation of primary conduct  conduct that is exclusively under federal control pursuant to Title II. [29] In the United States' view, MOSPA's impermissible indirect effect is inherent in the structure of its financial assurance provision. Because here, according to the United States, the potential to influence primary conduct cannot be eliminated or even discounted, the statute is preempted as a matter of law. Under this theory, there is no need to present facts demonstrating that the provision would impose an actual burden or impediment to federal Title II authority. One might ask why, if the state may impose a $1 billion financial assurance requirement, a state may not also reduce the amount based on the objective criteria set forth in the statute  criteria which appear, on their face, to be rationally related to the degree of the risk posed. After all, there would appear to be less risk of spillage from a double-hulled vessel. Similarly, a vessel's capacity would presumably be related to the amount of expected liability if a spill did occur. Tellingly, OPA itself has a federal financial assurance requirement; as recently amended by Congress, the statute requires differing amounts of financial assurance based on whether or not a vessel is single-hulled, based on whether or not the vessel is a tank vessel, and based on the gross tonnage [30] of the vessel. 33 U.S.C. §§ 2704, 2716. The United States responds that MOSPA's $1 billion requirement is effectively no more than a ceiling, and that in practice the amounts charged will vary depending on criteria that are exclusively under federal control under PWSA's Title II. The United States argues that a state may never use criteria within Title II to ground its decisions. [31] That is because the state's mechanism amounts to a financial incentive for any design, cargo or equipment changes that [state regulators] think appropriate. We are doubtful that when Congress authorized the states to set financial assurance requirements it at the same time meant per se to preempt states from using graduated levels rationally related to risk. It is again worth observing that OPA itself imposes federal financial assurance requirements that are not uniform for all vessels. Under the OPA regime, vessels over 300 gross tons with oil on board, and certain other vessels of any size, are required to provide evidence of financial responsibility sufficient to meet OPA's liability maximums. 33 U.S.C. § 2716; see also id. § 2704 (setting forth liability maximums). At the time OPA was enacted, these maximums differed based on the vessel's gross tonnage, and based on whether or not the vessel was a tank vessel. [32] Pub.L. No. 101-380, § 1004(a), 104 Stat. at 491-92. In light of this, it is difficult to believe that Congress intended to preclude the states from similarly calibrating their financial assurance requirements to account for different vessel characteristics. Moreover, we should not be quick to assume that Congress intended preemption here. One commentator has read Ray to mean that when a state provides for alternative courses of behavior, one preempted and one not, the overall state scheme is not preempted unless the state's requirements act to exert pressure on operators in preempted areas. See Tribe, supra, § 6-26, at 486-87. Ray considered and rejected such a claim on its facts, and in light of the Court's treatment of the issue, Professor Tribe has concluded that the basic teaching of the [ Ray ] decision is that state pressure to act in derogation of a federal statutory scheme is not to be inferred lightly. Id. at 487. That principle has even more force in our case. In OPA, Congress expressly preserved state power to require financial assurance. Ray 's discussion of indirect regulation did not involve any such explicit congressional preservation. Moreover, Ray decided the indirect regulation issue on a detailed record replete with factual stipulations. 435 U.S. at 156, 173 & n. 25, 98 S.Ct. 988. In this context, we reject the United States' arguments that the existence of pressure to conform conduct can be decided here as a matter of law, and that the actual effects of the state statute are irrelevant. As a fallback argument, the United States contends that it has established the existence of burdensome pressure, as MOSPA gives a state agency the authority to calibrate the assurance requirement on a case-by-case basis with only general guidance. It is not clear whether the United States means to argue that the state could constitutionally enact a financial assurance provision which, for example, allowed reductions according to a legislatively set schedule based on various design and other defined criteria. [33] Nor is it clear if the United States' position would permit a state to use regulations (rather than a statute) to enact such a provision, if these regulations reduced and cabined administrative discretion. The district court took a different approach. It correctly held that the effect of the statute was relevant. It asked whether the practical effect of the $1 billion rule was to force vessels to seek reductions pursuant to the exemption scheme. Massachusetts, 440 F.Supp.2d at 46. The court then decided, without hearing any evidence and on a motion for judgment on the pleadings, that the Commonwealth's one billion dollar financial assurance requirement imposes such an onerous financial obligation on a tank vessel owner that it in effect forces compliance with the statutory exception criteria. Id. As an initial matter, the $1 billion amount does not appear to be plainly unreasonable when measured against risk. The remedial costs of the Exxon Valdez spill in 1989 surpassed $2 billion (as measured in 1990 dollars). A. Rodriguez & P. Jaffe, The Oil Pollution Act of 1990, 15 Tul. Mar. L.J. 1, 16 (1990). In Buzzards Bay, while the clean-up costs from the 2003 spill were significantly lower, they were still sizable. [34] Moreover, the record does not yet contain evidence about the requirements other states have set, industry usage and practice, or the costs of obtaining financial assurance. Nor have the parties even discussed or presented evidence about the requirements set by the federal government. While our own research on this last point has uncovered the federal rules, see 33 U.S.C. §§ 2704, 2716, those rules simply highlight the need for further facts. Indeed, the federal requirements set a complicated formula based in part on a vessel's gross tonnage, and there is nothing in the record informing us about the gross tonnages of vessels that traverse Buzzards Bay. Of course, even if the $1 billion amount were not in itself unreasonable, it is possible that such an amount would still place strong pressure on the industry to change its primary conduct. Yet there is simply no evidence on this point. The district court also found it significant that there was a lack of notice to vessel owners about the specific criteria that the state would use in lowering the bond amount; this was the crux of its concern about the vagueness of the criteria and the untrammeled delegation to the state agency. See Massachusetts, 440 F.Supp.2d at 46. Given its finding that the state system necessarily forced vessels into compliance with the exemptions, the court held that the exemption scheme necessarily undercut the certainty that federal regulation under Title II afforded the industry. Id. The state characterizes the indirect regulation issue differently. It agrees with the district court that the analysis might turn on the practical effect of the $1 billion amount and the implemented exceptions. But it argues that there was no evidence of record to support the district court's conclusion. It also points out that an offer of proof was made to the court of evidence that no real burden is posed by the exemptions to the statute. The analysis presented thus far is insufficient to permit resolution of the matter on its merits. As the state has not yet exercised its administrative authority, it is unclear how it would choose to grant exceptions to the financial assurance requirement. We simply cannot yet say that MOSPA's section 50C(d) is incapable of any constitutional application. It may well be that the state will structure its decision making as to the exemption in a way that would frame the preemption question differently. It may even be that discussions between state and federal authorities would produce an agreed-upon scheme that adequately protects both state and federal interests. Given the absence of evidence at this stage, it is too early to know whether the state exception scheme would intrude impermissibly on the Coast Guard's exclusive authority under Title II. [35] On this record, the district court was not warranted in permanently enjoining any aspects of the financial assurance provision. [36] Nonetheless, we do share the concerns of the United States that the state has yet to make a showing, by regulation or otherwise, explaining how it will utilize its discretion under section 50C(d). Since the state has not structured its exemption scheme, there is no operational scheme to enjoin. The state should make such a showing on remand; we leave it to the district court to consider the appropriateness of a preliminary injunction thereafter.