PolyMet matter back in hands of Court of Appeals

In late September, the Minnesota Supreme Court declined to review the Minnesota Court of Appeal’s July 19, 2021, ruling that Minnesota Pollution Control Agency (MPCA) issuance of a “synthetic minor” air emissions permit failed to address contentions attributed to a public securities filing that the mine might not comply with the permit’s output restrictions.

Without further review, the Minnesota Court of Appeals decision is final that the MPCA must make additional factual findings to address whether the proposed mine will comply with all the conditions of its permit and whether or not it failed to disclose all relevant facts and information to the MPCA.

This is the third appellate court decision regarding PolyMet’s application for an air emissions permit in furtherance of its plan to build the first copper-nickel-platinum mine in Minnesota.

PolyMet submitted its initial air emissions permit application in August 2016 and a revised permit application in January 2018. If PolyMet has the potential to emit more than 250 tons of air pollution each year the mine would be deemed a “major stationary source” and required to undergo an exacting major source permitting process. Instead, PolyMet applied for a synthetic minor source permit in which it agreed to limit its ore-processing rate (or throughput) to 32,000 tons per day thereby limiting air pollution and qualifying the mine for a minor source permit (often referred to as a “synthetic minor” permit), and not requiring it to meet the exacting requirements for a major stationary source.

Ten days after the permit’s public comment period closed, PolyMet’s Canadian parent corporation filed a report with Canadian securities regulators (Canadian Report). The Canadian Report evaluated the economics of the Minnesota mine with the synthetic minor permit limitations (32,000 tons per day) and determined that it would result in an internal rate of return (IRR) of 10.3%.

However, the Canadian Report also discussed the feasibility of increasing the throughput at the Minnesota mine to levels that would require a major source permit and how this higher throughput could increase its IRR to potentially as high as 23.6%.

One of the relator environmental groups notified the MPCA of the Canadian Report on three occasions, and provided additional related documents, after the public comment period closed but before the MPCA made its final decision to issue the mine’s synthetic minor air emissions permit. The environmental group raised concerns whether the planned throughput was economical and if there was an intent to build a larger mine.

In preparing its record, the MPCA did not list the Canadian Report or other documents provided by the environmental group after the public comment period. The environmental advocacy groups moved to complete or supplement the record and in its March 23, 2020, decision, the Court of Appeals granted the motion to supplement. The Court of Appeals discussed, in a footnote, federal case law stating that a motion to complete is proper when an agency omits documents it considered in making a decision and a motion to supplement is appropriate when there are records that were not considered by the agency but are “necessary for the court to conduct a substantial inquiry.”

The court also commented in a footnote that this was a unique situation as while the information did not become available until after the public comment period closed, it was publicly available months before the agency issued its final decision and, given the content, the agency should have preserved and included the materials as part of the record.

On appeal, the Supreme Court found that the MPCA and PolyMet forfeited any challenge to the motion to supplement by not raising any objection until oral argument. The Supreme Court also referenced, in a footnote, federal case law supporting that supplementing the record can be appropriate “for a limited class of documents which should have been considered by the [agency] in reaching the challenged decision.”

The Supreme Court further noted that there was no dispute that the MPCA had the documents months before it issued the permit.

Based on these supplemented documents, the Supreme Court remanded the matter back to the Court of Appeals to determine whether: 1) the Canadian Report and other evidence undermined the MPCA’s conclusion that PolyMet would comply with all conditions of the permit; and 2) whether the MPCA should have denied the permit because Polymet “failed to disclose fully all facts relevant” to the permit and “knowingly submitted false or misleading information” to the MPCA.

On remand, the Court of Appeals applied the “substantial-evidence” test and explained that “two inquiries frame the substantial-evidence test.”

First, it must be determined that the agency “adequately explained how it derived its conclusion” and second, “whether that conclusion is reasonable on the basis of the record.” While courts often focus on the second part, whether there is sufficient evidence, an agency must also “explain its methodology or reasoning when support for its conclusion is not readily discernible from the evidentiary record.”

The court found that the MPCA’s permit findings were brief and mainly focused on procedural history, although the agency did append a lengthy technical support document and responses to public comments.

Nothing in the finding and attachments, however, addressed the Canadian Report or other documents, or the potential that PolyMet would expand operations after obtaining the synthetic minor source permit. The court found that while the MPCA concluded that PolyMet was anticipated to comply with the terms of its synthetic minor source permit, it did not explain why it found this conclusion to be correct.

While the MPCA denied any “duty to investigate” a permittee’s future plans it agreed that it must “conduct a ‘detailed’ and ‘iterative’ permitting process” which “includes independently verifying technical data and assumptions” and seeking any necessary permit information.

The Court of Appeals disagreed with MPCA’s argument that it satisfied the substantial evidence test by incorporating the technical support documents and a letter to the environmental group, the latter of which was not part of the MPCA’s decision.

The court noted that the MPCA had a copy of the Canadian Report and other documents that called into question whether PolyMet could be expected to comply as the information indicated profitability would be limited with the lower throughput and that PolyMet was evaluating profitability with a higher throughput. The court further relied on the Canadian Report when it determined that the MPCA failed to make any reflective findings on whether PolyMet had failed to disclose relevant facts and whether the new facts required additional inquiry.

The court held that as the MPCA had not “adequately explained the reasons for either of its conclusions, the agency did not satisfy the substantial evidence test.

The court remanded the matter back to the MPCA for additional findings and a revised decision, rather than reverse the agency’s decision as lacking the support of substantial evidence. The court expressly stated that it has “not concluded that the record could not support a reasoned decision” by the MPCA to issue the permit but only that the MPCA “did not make such a reasoned decision.” This remand will require that the MPCA review and consider the information in the Canadian Report and other supplemented documents and make findings as to whether the permittee will comply with all conditions of the permit and whether it disclosed all relevant facts and information.

The contents of these supplemented documents and its impact on the permitting decision were at issue in all three appellate court decisions and demonstrate the delay that can happen when an agency does not consider all of the information it has available to it prior to making a decision.  This is also a lesson to regulated parties to ensure they consider all materials being provided to the public in other venues as it may become an issue in a regulatory action.

This case also illustrates the challenge to permittees in meeting the “substantial evidence” test that administrative laws often require to support permit decisions, when facing highly charged factual contentions that the administrative agency deems outside the permitting process.

In mid-October, the MPCA posted that the court “did not direct MPCA to reopen the administrative record and the agency will not be accepting new information.” The MPCA further posted that it would review the administrative record materials consistent with the Court of Appeal’s remand within 60 days.

Thus, it appears the MPCA should have a determination prior to the end of 2021.

Karen Olson is of counsel at Spencer Fane in Minneapolis.