Thu 01/11/2024 17:16 PM
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Relevant Document:
Opinion

The U.S. Court of Appeals for the Eleventh Circuit today dismissed the petitions by Hunt Refining Co., or Hunt, for review of the U.S. Environmental Protection Agency’s denial of Hunt’s requests for small refinery hardship exemptions from the renewable fuel standard, or RFS, of the Clean Air Act, or CAA, for compliance years 2018 through 2022. In reaching its conclusion, the Eleventh Circuit agreed with the EPA, determining that Hunt’s petitions should have been filed in the United States Court of Appeals for the District of Columbia. As a result, the court granted the EPA’s motion to dismiss the petitions under the judicial review provision of the CAA.

The court notes, however, that Hunt has also filed petitions for review of the April and June 2022 denial actions in the D.C. Circuit and those petitions have been consolidated with other refineries’ challenges to the same agency actions and are currently being briefed on the merits. Therefore, while the Eleventh Circuit concludes that Hunt’s challenges to the denial actions must be heard in the D.C. Circuit, it has elected to grant the EPA’s request to dismiss them instead of transferring them on the basis that “it will be more efficient and save a step or two” for the court.

The RFS requires refiners to either blend renewable fuels into the finished transportation fuels they sell in the United States or purchase credits called renewable identification numbers, or RINS, from third parties on the open market.

Opinion of the Court

Judge Ed Carnes, writing the opinion of the court, reviews the CAA, specifically the judicial review provision, which expressly provides that “challenges to ‘nationally applicable’ final actions taken by the EPA ‘may be filed only in’ the United States Court of Appeals for the District of Columbia, while challenges to “locally or regionally applicable” EPA final actions ‘may be filed only in’ the appropriate regional circuit court of appeals.” The opinion notes, however, that under the judicial review provision, “if a locally or regionally applicable action is ‘based on a determination of nationwide scope or effect,’ and if, in taking that action, ‘the [EPA] Administrator finds and publishes that such action is based on such a determination,’ a challenge to that action must be filed in the D.C. Circuit.”

The EPA argued that Hunt should have filed its petitions for review in the D.C. Circuit because the challenged denial actions “either were ‘nationally applicable’ or, if locally applicable, are ‘based on a determination of nationwide scope or effect’ made and published by the EPA.” In dismissing Hunt’s petitions, the Eleventh Circuit concludes that the April and June 2022 EPA decisions in the case “were nationally applicable and may be challenged only in the D.C. Circuit.” However, even if those decisions were only locally or regionally applicable, the court concludes that “they were based on a determination of nationwide scope or effect because they announced a new, universally applicable approach to evaluating hardship petitions, and the EPA published a finding to that effect.”

The opinion points out that the Eleventh Circuit is “not alone in reaching that conclusion, explaining that the Third, Seventh, Ninth and Tenth Circuits “have all granted similar motions by the EPA to dismiss or transfer petitions for review of the same denial actions to the D.C. Circuit.”

While Judge Carnes acknowledges the Fifth Circuit’s decision in Calumet Shreveport Refin., LLC v. EPA in which the two-member majority denied the EPA’s motions to transfer petitions for review of the April and June denial actions on the basis that the challenged actions “were locally or regionally applicable and not based on a determination of nationwide scope or effect” and “had no national legal effect,” the Eleventh Circuit finds the dissent’s “‘inescapable’” conclusion in Calumet - that the denial actions here are nationally applicable - “more persuasive.” Judge Carnes writes, “Like Judge Higginbotham, we can’t escape that conclusion.”

Even if the actions were locally or regionally applicable, the Eleventh Circuit finds that it “would disagree with the conclusion that they were not based on a determination of nationwide scope or effect.” Instead, the EPA based its adjudications “on a new statutory interpretation and economic analysis, and the scope or effect of that new approach is nationwide,” the opinion concludes.

Concurring Opinion

In a concurring opinion, Judge Barbara Lagoa joins the majority opinion but writes “to clarify a point of law that is featured in the parties’ arguments and to rectify a bit of confusion arising from this Court’s dicta in Sierra Club v. Leavitt.”

Judge Lagoa reiterates that the CAA requires challenges to “nationally applicable” agency actions to be filed in the D.C. Circuit if two conditions are met: “(1) the agency action is ‘based on a determination of nationwide scope or effect’; and (2) ‘if in taking such action the Administrator [of the EPA] [found] and publishe[d] that such action is based on such a determination.’”

Judge Lagoa writes that Leavitt “blurred the lines between these two conditions” by stating in dicta that “[i]t is for the Administrator of the EPA, not this Court, to judge whether [the] EPA has made a determination of nationwide scope.”

The concurring opinion reasons that this “mischaracterizes the framework” established by the CAA, saying “[t]he Administrator’s judgment as to whether a locally or regionally applicable EPA action is based on a determination of nationwide scope or effect certainly bears a relationship with the second condition for exclusive judicial review in the D.C. Circuit, i.e., that the Administrator publishes a finding to that effect … [b]ut the Administrator’s judgment on this matter does not control the first condition for exclusive judicial review in the D.C. Circuit, i.e., that the agency action actually be ‘based on a determination of nationwide scope or effect.’”

Lagoa adds that Leavitt’s discussion of the issue is dicta, and that today’s opinion “reflects a proper understanding of the two related but separate conditions for exclusive judicial review in the D.C. Circuit.”

Request for Extension of Loan Agreement

Hunt, which reported $401.7 million in RIN obligations as of Sept. 30, 2023, is seeking an extension of the loan agreement for its $612 million of Series 2019A bonds to, among other things, “add a new exception to the existing requirement that the audited financial statements of the Company and its Subsidiaries … not contain a ‘going concern’ or like statement, qualification or exception” that would “allow such a qualification related to any accrued [RIN] liabilities or any obligations to pay or satisfy any [RFS] liabilities, or any other matters relating to RINs or the RFS regulations, in each case, for any applicable RINs compliance years, so long as there is no final enforcement event in respect thereof” (emphasis added).

Final enforcement events under the proposed amendment, for which the consent solicitation period expires on Jan. 31 at 5 p.m. ET, include the entry of a final, non-appealable court order (or the issuance of a directive or order by a governmental entity with which the company will comply) that requires Hunt or any of its restricted subsidiaries to pay or satisfy RFS liabilities.

In September 2023, Hunt amended its monetization master agreement with J. Aaron & co. LLC to provide for “a new event of default that is triggered if, among other things … a final order is rendered requiring the Company to pay obligations under the RFS and the Company does not meet certain liquidity thresholds after giving effect to the payments required under such order.”

Events of default under the amended monetization master agreement include the entry of a final, non-appealable court order (or the issuance of a directive or order by a governmental entity with which the company will comply) that requires Hunt or any of its restricted subsidiaries to pay or satisfy RFS liabilities that would result in “Liquidity” of less than $70 million.

Hunt Refining's $412 million 5.25% Series 2019A refunding bond due 2044 traded at 94 to yield 5.7% on $2 million in volume on Jan. 8, up from the previous trade at 91.7 to yield 5.9% on $5 million in volume on Dec. 15, according to EMMA. The bonds rallied toward the end of the year from an annual low of 82.5 to yield 6.8% on $15 million in volume on Nov 7.
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