EOR Energy LLC et al v. Bonnett et al

Filing 36

OPINION: The Defendants' Motion to Dismiss FirstAmended Complaint (d/e 18 ) is GRANTED. The First AmendedComplaint is DISMISSED without prejudice for failure to allege anactual controversy. Plaintiffs are granted leave to file a secondamended complaint that contains factual allegations sufficient todemonstrate the existence of an actual controversy between theparties on or before April 14, 2017.(SEE WRITTEN OPINION.) Entered by Judge Sue E. Myerscough on 3/31/2017. (GL, ilcd)

E-FILED

Friday, 31 March, 2017 02:52:52 PM
Clerk, U.S. District Court, ILCD

IN THE UNITED STATES DISTRICT COURT
CENTRAL DISTRICT OF ILLINOIS
SPRINGFIELD DIVISION
E.O.R. ENERGY L.L.C., and
AET ENVIRONMENTAL, INC.,

)
)
)
Plaintiffs,
)
)
v.
)
)
ALEC MESSINA, as Director of
)
Illinois Environmental Protection )
Agency, and ILLINOIS
)
ENVIRONMENTAL PROTECTION )
AGENCY,
)
)
Defendants.
)

No. 3:16-CV-03122

OPINION
SUE E. MYERSCOUGH, U.S. District Judge.
This cause is before the Court on the Motion to Dismiss First
Amended Complaint (d/e 18) filed by Defendants Lisa Bonnett, as
the former Director of the Illinois Environmental Protection Agency
(IEPA), and the IEPA. The suit was brought against Bonnett in her
official capacity. Pursuant to Federal Rule of Civil Procedure 25(d),
Bonnett’s successor, Alec Messina, is automatically substituted as
a party.

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The Motion to Dismiss First Amended Complaint is
GRANTED. Plaintiffs have failed to allege an actual controversy
and, therefore, the Court lacks jurisdiction over Plaintiffs’ claims.
Plaintiffs’ First Amended Complaint is dismissed without prejudice
and with leave to replead.
I. BACKGROUND
In September 2016, Plaintiffs E.O.R. Energy, L.L.C. (EOR)
and AET Environmental, Inc. (AET) filed the First Amended
Complaint. EOR is a small, independent oil and gas producer.
First Am. Compl. ¶10. EOR conducts what is called “acidization,”
which EOR defines as the introduction of various acidic solutions
into oilfields to enhance secondary and tertiary oil recovery. Id. ¶¶
2, 3. AET is a material broker permitted under the U.S.
Environmental Protection Agency to handle, transport, and store
solid and hazardous wastes and permitted by the U.S. Department
of Transportation to handle, transport, and store hazardous
materials. Id. ¶ 11.
The Illinois Department of Natural Resources (IDNR) issued
Class II underground injection control permits to EOR under the
Safe Drinking Water Act (42 U.S.C. § 300h). Id. ¶¶ 10, 15. These
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permits allowed EOR to operate oil and gas production wells and
related underground injection and disposal wells on EOR oil leases
located in Sangamon and Christian Counties in Illinois. Id. On
March 23, 2007, the IEPA filed a complaint before the Illinois
Pollution Control Board against EOR and AET alleging that EOR
and AET violated 42 U.S.C. § 300h-1, as codified in Illinois by 40
C.F.R. 147.700, by arranging for the illegal transportation of
hazardous waste from Colorado to Illinois and for injecting the
hazardous waste without first obtaining an IEPA-issued Class I
hazardous waste disposal underground injection permit. Id. ¶16.
In September 2012, January 2013, and April 2013, the
Pollution Control Board issued orders purporting to find that EOR
and AET violated the state-authorized regulations implementing
the federal Safe Drinking Water Act and Resource Conservation
and Recovery Act (42 U.S.C. § 6901) injection bans by injecting or
otherwise introducing acid into EOR’s Class II and oil wells without
a Class I permit. Id. ¶ 17. On December 15, 2015, IEPA issued
demand letters to Plaintiffs demanding over $10 million in
penalties. Id. ¶ 18.

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Plaintiffs do not mention in the First Amended Complaint
that they appealed the Pollution Control Board’s final orders to the
Illinois Appellate Court, although that information is contained in
one of the demand letters Plaintiffs attached as an exhibit to the
complaint. See d/e 17-3. A court may take judicial notice of
documents in the public record when ruling on a motion to dismiss
under Rule 12(b)(6). Olson v. Champaign Cnty., Ill., 784 F.3d
1093, 1096 n.1 (7th Cir. 2015).
On administrative review, Plaintiffs argued that the IEPA and
the Pollution Control Board did not have jurisdiction because (1)
the acid material shipped into Illinois was not “waste” or
“hazardous waste” and (2) only IDNR had jurisdiction to regulate
injections into Class II wells. The Fourth District Appellate Court
rejected these arguments. E.O.R. Energy, LLC v. Pollution Control
Bd., 2015 IL App (4th) 130443 (2015).
Specifically, the appellate court agreed with the Pollution
Control Board that the acid material at issue constituted waste or
hazardous waste within the meaning of the Environmental
Protection Act (415 ILCS 5/3.220). Id. ¶ 80. In addition, the court
rejected Plaintiffs’ argument that the acid material injected into the
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Class II wells fell within the exclusive regulatory jurisdiction of the
IDNR under the Oil and Gas Act. Id. ¶ 91.
The appellate court noted that the General Assembly created
a comprehensive statutory structure—known as the Illinois
underground injection control (UIC) program—for the regulation of
underground injection of materials into wells. E.O.R. Energy, 2015
WL App (4th) 130443, ¶ 83. The Illinois UIC program was
promulgated with federal approval pursuant to the federal UIC
program, which allows states the option of implementing their own
UIC programs that comply with federal standards. Id. The federal
UIC program was promulgated under the Safe Drinking Water Act
and, to the extent the program deals with hazardous waste, the
Resource Conservation and Recovery Act. Id.
The appellate court noted that the Illinois Environmental
Protection Act designated the IEPA as the implementing agency for
all purposes of the Safe Drinking Water Act, with the exception of
section 300h-4 of the Safe Drinking Water Act, which provides the
authority for federally approved state programs relating to “(1) the
underground injection of brine or other fluids which are brought to
the surface in connection with oil or natural gas production or
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natural gas storage operations, or (2) any underground injection
for the secondary or tertiary recovery of oil or natural gas.” Id.
¶ 84. (quoting 42 U.S.C. § 300h-4 (2006)). “Illinois’s package of
UIC-related statutes and regulations submitted to the federal
government for approval provided that Class II wells …be regulated
by the IDNR under the Oil and Gas Act. E.O.R. Energy, 2015 WL
App (4th) 130443, ¶ 84 (also noting that Class II wells are known
as “oil-and-gas-related-injection wells”). The IEPA was given the
authority over hazardous-waste injection wells. Id. (citing 35 Ill.
Adm. Code 730.105 (2012).
The appellate court found that the Oil and Gas Act provided
the IDNR authority only over Class II injections into Class II
injection wells, meaning that the IDNR’s regulatory power under
the UIC program was limited to the injection of fluids associated
with oil and gas extraction. Id. ¶ 87. Because the material
injected in the case was not a Class II fluid that the IDNR was
authorized to regulate, and because the material was an acid
material that fell within the Environmental Protection Act’s
definition of “hazardous waste,” the IEPA and the Pollution Control
Board had jurisdiction over the injection. Id. ¶ 88. The fact that
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the material was injected into a Class II well did not matter for
jurisdictional purposes. Id.
In the First Amended Complaint, Plaintiffs seek a declaratory
judgment interpreting and declaring Plaintiffs’ rights and
obligations under the Safe Drinking Water Act and the Resource
Conservation and Recovery Act as codified and applied in Illinois.
Specifically, Plaintiffs ask this Court to declare and order that (1)
under federal law, Class II injection wells in Illinois are subject
only to IDNR regulation and permit requirements, per the express
provisions of the Safe Drinking Water Act and Resource
Conservation and Recovery Act, as codified at 40 C.F.R. § 147.700
and 701; and (2) under federal law, the IEPA and the Pollution
Control Board may not regulate or require a second UIC injection
permit under 40 C.F.R. § 147.700 for Class II wells in addition to
existing IDNR Class II permits.
Defendants have filed a Motion to Dismiss pursuant to
Federal Rule of Civil Procedure 12(b)(6) asserting that Plaintiffs’
action is barred by res judicata and collateral estoppel.
Defendants also assert that the Eleventh Amendment bars the
action against the IEPA and the Director.
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II. LEGAL STANDARD
A motion under Rule 12(b)(6) challenges the sufficiency of the
complaint. Christensen v. Cnty. of Boone, 483 F.3d 454, 458 (7th
Cir. 2007). To state a claim for relief, a plaintiff need only provide
a short and plain statement of the claim showing she is entitled to
relief and giving the defendants fair notice of the claims. Tamayo
v. Blagojevich, 526 F.3d 1074, 1081 (7th Cir. 2008). When
considering a motion to dismiss under Rule 12(b)(6), the Court
construes the complaint in the light most favorable to the plaintiff,
accepting all well-pleaded allegations as true and construing all
reasonable inferences in her favor. Id.
Res judicata and collateral estoppel are affirmative defenses.
See Fed.R.Civ.P. 8(c) (listing res judicata); Adair v. Sherman, 230
F.3d 890, 894 (7th Cir. 2000) (collateral estoppel/issue
preclusion). Generally, a defendant should raise an affirmative
defense in a responsive pleading and then file a motion for
judgment on the pleadings. Carr v. Tillery, 591 F.3d 909, 913
(7th Cir. 2010) (also finding that although the district court judge
Ajumped the gun@ by dismissing the case under Rule 12(b)(6), the
error was of no consequence because the judge had before him all
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the information needed to rule on the defense and the plaintiff did
not complain of the error). However, where an affirmative defense
is disclosed by the complaint, a Rule 12(b)(6) motion to dismiss is
proper. Muhammad v. Oliver, 547 F.3d 874, 878 (7th Cir. 2008).
An affirmative defense is “disclosed in the complaint where (1) the
facts that establish the defense are definitely ascertainable from
the allegations of the complaint, the documents (if any)
incorporated therein, matters of public record, and other matters
of which the court may take judicial notice; and (2) those facts
conclusively establish the defense.@ Novickas v. Proviso Township
High School 209, No. 09-cv-3982, 2010 WL 3515793, at *2 (N.D.
Ill. Aug. 21, 2010).
Here, all of the facts relevant to Defendants’ res judicata and
collateral estoppel defenses are ascertainable from the First
Amended Complaint and judicially noticeable records from the
Illinois Appellate Court for the Fourth District of Illinois. See First
Am. Compl. ¶¶ 16, 17; Attachment B, Illinois Pollution Control
Board Complaint (d/e 17-2); Attachment C, Demand Letters (d/e
17-3) (referencing the Board’s order, the affirmance by the Illinois
Appellate Court for the Fourth District, and the Supreme Court’s
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denial of leave to appeal); E.O.R. Energy, 2015 IL App (4th)
130443.
Therefore, the Motion to Dismiss is properly brought under
Rule 12(b)(6). Defendants bear the burden of proving that res
judicata and collateral estoppel bar Plaintiffs’ current suit. See
ITOFCA, Inc. v. MegaTrans Logistics, Inc., 322 F.3d 928, 933 (7th
Cir. 2003).
III. ANALYSIS
Defendants move to dismiss the First Amended Complaint on
several grounds. First, Defendants argue that the claims brought
by Plaintiffs are barred by res judicata and collateral estoppel.
Second, Defendants argue that the relief sought is barred by the
Eleventh Amendment.
A.

Defendants Have Not Demonstrated That Res Judicata
and Collateral Estoppel Apply
“Under res judicata, a final judgment on the merits bars

further claims by parties or their privies based on the same cause
of action.” Montana v. United States, 440 U.S. 147, 153 (1979).
“Under collateral estoppel, once an issue is actually and
necessarily determined by a court of competent jurisdiction, that
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determination is conclusive in subsequent suits based on a
different cause of action involving a party to the prior litigation.”
Id.
Defendants first argue that this action is barred by res
judicata because there has been a final adjudication on the merits
of Plaintiffs’ claims. Plaintiffs raised in the state court proceedings
the issue that the IEPA and the Pollution Control Board lacked
jurisdiction over the enforcement proceedings. That claim was
actually litigated in the Illinois Appellate Court, and leave to appeal
before the Supreme Court of Illinois was denied, and the United
States Supreme Court denied certiorari. See E.O.R. Energy, 2015
IL App (4th) 130443, appeal denied 39 N.E.3d 1001 (Ill. 2015), 39
N.E.3d 999 (Ill. 2015), cert. denied 136 S. Ct. 1664 (2016).
A state judgment must be given the same preclusive effect in
federal court that it would be given in the court of the rendering
state. See J & W Fence Supply Co., Inc. v. United States, 230 F.
3d 896, 898 (7th Cir. 2000); 28 U.S.C. § 1738. Therefore, whether
Plaintiffs’ claims are barred by res judicata and collateral estoppel
depends on the preclusive effect of the state-court judgment under
Illinois law.
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In Illinois, res judicata applies when there is: (1) a final
judgment on the merits rendered by a court of competent
jurisdiction; (2) an identity of parties or their privies; and (3) an
identity of causes of actions. River Park, Inc. v. City of Highland
Park, 184 Ill. 2d 290, 302 (1998). Res judicata extends to every
matter that was actually determined in the prior suit as well as
every matter that could have been raised and determined.
Torcasso v. Standard Outdoor Sales, Inc., 157 Ill. 2d 484, 490
(1993).
Plaintiffs concede that there was a final judgment on the
merits and an identity of the parties. EOR Resp. at 10 (d/e 22);
AET Resp. adopting EOR Resp. (d/e 21). Plaintiffs argue, however,
that there is no identity of cause of action because the issue in the
underlying proceeding is different than the issue in this case.
Plaintiffs claim that they are not attempting to revisit the issue of
whether IEPA and the Pollution Control Board had jurisdiction
over the acid material as a hazardous waste. Instead, Plaintiffs
claim the federal lawsuit seeks to determine how many permits
EOR must obtain to perform acidization of its wells.

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In Illinois, separate claims are considered the same cause of
action for purposes of res judicata if “they arise from a single group
of operative facts, regardless of whether they assert different
theories of relief.” River Park, 184 Ill. 2d at 311. In the first
litigation, the operative facts revolved around Plaintiffs’
transportation, storage, and injection of hazardous waste into
EOR’s wells, which occurred in 2002 through 2004. The Court
interprets Plaintiffs’ First Amended Complaint as seeking a
declaratory judgment that only IDNR has the authority to regulate
the injection of acid—as distinguished from hazardous waste—into
Class II wells and that EOR does not have to obtain a separate
Class I permit from the IEPA to conduct secondary recovery of oil
and gas in Illinois. The Court finds that these two issues do not
arise from the same operative facts. Plaintiffs are not challenging
the determination that the IEPA has jurisdiction over the injection
of hazardous waste into Class II wells but instead seeks a
determination of whether a second Class I permit from the IEPA is
also required for the injection of acid that is not a hazardous
waste. Therefore, Defendants have not met their burden of
demonstrating that res judicata bars Plaintiffs’ claim.
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Similarly, the Court finds that collateral estoppel does not
apply. Under Illinois law, collateral estoppel applies where (1) the
issue decided in the prior adjudication is identical to the issue
presented in the suit in question; (2) there was a final judgment on
the merits in the prior adjudication; and (3) there is an identity of
parties or their privies. Nowak v. St. Rita High School, 197 Ill. 2d
381, 390 (2001). In addition, the decision on the issue must have
been necessary for the judgment in the first litigation. Talarico v.
Dunlap, 177 Ill. 2d 185, 191 (1997).
The Court finds that these issues are not the same for the
same reasons stated with regard to res judicata. The Court notes,
however, that the appellate court specifically found that IDNR had
“authority only over Class II injections into Class II injection wells,”
which is similar to the finding Plaintiffs request in this case. See
E.O.R. Energy, 2015 WL App (4th) 130443, ¶ 87. However, this
determination was not necessary for the judgment in the first
litigation such that collateral estoppel does not apply. Therefore,
Defendants have not met their burden of demonstrating that
collateral estoppel bars Plaintiffs’ claim.

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B.

Plaintiffs’ Do Not Allege an Actual Controversy
Given the Court’s interpretation of the issue raised by

Plaintiffs in the First Amended Complaint, the Court questions
whether Plaintiffs have demonstrated an actual controversy
between the parties as is necessary for declaratory relief. See
Medimmune, Inc. v. Genentech, Inc., 549 U.S. 118, 127 (2007)
(“Basically, the question in each case is whether the facts alleged,
under all the circumstances, show that there is a substantial
controversy, between parties have adverse legal interest, of
sufficient immediacy and reality to warrant the issuance of a
declaratory judgment.’”) (quoting Maryland Cas. Co. v. Pacific Coal
& Oil Co., 312 U.S. 270, 273 (1941)). The Declaratory Judgment
Act does not dispense with the Article III case or controversy
requirement and does not itself supply the Court with subject
matter jurisdiction. Nationwide Ins. V. Zavalis, 52 F.3d 689, 69192 (7th Cir. 1995). The “actual controversy” requirement is a
distinct and separate jurisdictional question of constitutional
dimension. GNB Battery Techs., Inc. v. Gould, Inc., 65 F.3d 615,
520 (7th Cir. 1995); Republic Techs. (NA), LLC v. BK Tobacco &
Foods, LLC, No. 16 C 3401, 2016 WL 3633338, at *3 (N.D. Ill. July
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7, 2016) (noting that the plaintiff had the burden of establishing
subject matter jurisdiction by alleging facts sufficient to show its
dispute with the defendant was of “sufficient immediacy and reality
to warrant the issuance of a declaratory judgment”) (internal
quotation marks omitted).
A federal court is obligated to inquire into the existence of
jurisdiction sua sponte. Evergreen Square of Cudahy v. Wis.
Housing & Economic Development Auth., 776 F.3d 463, 465 (7th
Cir. 2015); Fed.R.Civ.P. 12(h)(3) (providing that if a court
determines at any time that it lacks subject-matter jurisdiction,
the court must dismiss the action). Here, Plaintiffs have not
alleged facts sufficient to show a dispute with Defendants that is of
sufficient immediacy and reality to warrant a declaratory
judgment. The fact that the IEPA brought an enforcement action
against Plaintiffs for the injection of hazardous waste into a Class
II well does not suggest that there is a substantial controversy
between the parties of sufficient immediacy and reality for the
Court to determine whether Plaintiffs have to obtain Class I
permits to inject acid (non-hazardous waste) into Class II wells,
particularly in light of the finding by the appellate court that IDNR
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has the authority over Class II injections into Class II injection
wells. Therefore, while the Court denies the motion to dismiss on
grounds of re judicata and collateral estoppel, the Court grants the
motion to dismiss on the ground that Plaintiffs have failed to allege
an actual controversy with Defendants. However, the dismissal is
without prejudice to Plaintiffs’ right to file an amended complaint if
Plaintiffs believe they can allege facts sufficient to demonstrate an
actual controversy between the parties. Moreover, because the
Court is dismissing the cause for lack of jurisdiction, the Court will
not address Defendants’ Eleventh Amendment claims at this time.
IV. CONCLUSION
For the reasons stated, Defendants’ Motion to Dismiss First
Amended Complaint (d/e 18) is GRANTED. The First Amended
Complaint is DISMISSED without prejudice for failure to allege an
actual controversy. Plaintiffs are granted leave to file a second
amended complaint that contains factual allegations sufficient to
demonstrate the existence of an actual controversy between the
parties on or before April 14, 2017.

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ENTER: March 31, 2017
FOR THE COURT:
s/Sue E. Myerscough
SUE E. MYERSCOUGH
UNITED STATES DISTRICT JUDGE

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