OceanConnect vs. US EPA: the inside story

Count 1: EPA’s actions are arbitrary, capricious, an abuse of discretion, procedurally deficient, and otherwise not in accordance with law.

Count 2: The EPA’s actions are contrary to the Clean Air Act and its implementing regulations.

Count 3: EPA’s actions violate the due process clause of the Fifth Amendment.

Count 4: The EPA is estopped (the federal common law doctrine of equitable estoppel) of from alleging legal violations based on the Clean Green fraud.

Count 5: Request for declaratory judgment.

To those who haven’t been following the cutthroat world of biodiesel lately, these counts may sound like a pending case against EPA with the oil majors as plaintiffs, but not so. The recent fraudulent RIN activity and subsequent actions by EPA (see “Case No. 3: EPA issues Green Diesel violation for 60M bad RINs”) has caused RIN broker OceanConnect to sue EPA based on the counts above.

“At the heart of this crisis,” says Eric Rubury, president of OceanConnect, “is the EPA registered these perpetrators (Clean Green Fuel, Absolute Fuels and Green Diesel LLC) as renewable fuel producers without confirming that they possessed any facilities to produce this fuel. These perpetrators were not only fully registered producers on the EPA website, somewhat ironically they’re still on the EPA website as registered producers. Yet the EPA basically claims that it had no responsibility for any due diligence whatsoever in the enrollment and registration of biodiesel producers; had no responsibility for ongoing monitoring of the program, had no responsibility to advise the market when it had specific and unimpeachable knowledge of fraudulent activity, had no responsibility to advise on the validity of the RINs in its program, and bears no responsibility to consider approaches that do not punish legitimate and honest market participants.”

Exhibit A in the suit is the record of events and actions EPA took since it first began its investigation into Rodney Hailey, president of Maryland-based Clean Green Fuel, back in July 2010. For more than a year since then, up to November 2011, OceanConnect is complaining that EPA did nothing to revoke Clean Green Fuel’s registration or notify the market that its RINs were invalid, and with the knowledge EPA was privy to regarding the Clean Green Fuel fraud, the agency could have avoided the issue of fines, penalties and repurchasing valid RINs altogether. The EPA has a duty to not cause others to violate the RFS2 program, the complaint states.

“As the scope of this fraud continues to grow, and since the fraud that has severely affected the market was an exceptionally large event, we strongly feel that it requires exceptional consideration by the EPA,” Rubury says. “Moreover, we feel that EPA has options within its authorities to remedy its approach, restore stability in the marketplace, and maintain full authority to monitor and enforce.”

With the Green Diesel NOV, Rubury says the size and scope of the fraud, previously estimated to cost market participants $100 million between fines and the cost to replace the invalidated RIN credits, has doubled overnight. “The scandal now has a price tag that could reach the hundreds of millions of dollars.”