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Nalco Company v. United States Environmental

May 18, 2011

NALCO COMPANY, PLAINTIFF,
v.
UNITED STATES ENVIRONMENTAL PROTECTION AGENCY, ET AL., DEFENDANTS.



The opinion of the court was delivered by: Rosemary M. Collyer United States District Judge

MEMORANDUM OPINION ON MOTION FOR PRELIMINARY INJUNCTION

Nalco Company sells OxiPRO,TM a system to aid in killing microbial growth in the manufacturing process of pulp and paper mills. After lengthy consideration and analysis, the Environmental Protection Agency concluded that the addition of ammonia or urea products to the sodium hypochlorite in the system resulted in a new and different pesticide from the chlorine solution itself. Thus, in December 2010 EPA determined that the ammonia and urea products sold within the OxiPRO system must be registered as "pesticides" under the Federal Insecticide, Fungicide and Rodenticide Act ("FIFRA"), 7 U.S.C. § 136-136y. Despite this conclusion, the EPA enforcement order that arose from this decision only prohibited Nalco from selling its ammonia- and urea-based products to new customers; it permitted on-going sales to existing customers. In March 2011, Nalco's competitors sued EPA, demanding that EPA stop Nalco's sales of ammonia and urea products altogether.*fn1 Then, on April 18, 2011, EPA changed course and issued a Stop Sale Order, requiring Nalco to cease all sales of urea-based products and limit sales of its ammonia-based product. The competitors dropped their suit against EPA. Nalco seeks a preliminary injunction against enforcement of the April Stop Sale Order, asserting that the Order is arbitrary and capricious.

EPA argues that the Court has no jurisdiction to rule on its enforcement choices and, alternatively, that it has changed its enforcement posture from December 2010 to April 2011 for legitimate reasons. These arguments would have more force if EPA had not indicated at oral argument that it changed its position in part to level the commercial market between Nalco and its competitors. There is no basis in FIFRA for EPA to exercise its enforcement authority to balance markets; such a purpose constitutes arbitrary and capricious action. Additionally, EPA distinguished, without explanation, Nalco's urea-based products and its ammonia-based product. Because Nalco has met the standards required to obtain a preliminary injunction, the Court will enjoin enforcement of the April 18, 2011 Stop Sale Order and remand the matter to EPA for reconsideration.

I. FACTS

Nalco seeks to enjoin the April 18, 2011 Stop Sale Order issued by EPA.*fn2 The Stop Sale Order arises from a December 16, 2010 Letter Determination by EPA that some of Nalco's products must be registered under FIFRA. The Stop Sale Order requires Nalco to cease selling its urea-based products 60615 and 60630 altogether and prohibits the sale of its ammonia-based product 60620 to all but current 60620 customers.*fn3 Nalco seeks to enjoin enforcement of the April Stop Sale Order until EPA has completed its review of Nalco's registration of the products for use under FIFRA.

Nalco is a process and water treatment solutions provider to customers in the energy, paper, and water industries.*fn4 The "wet-end" processing in a pulp and paper mill produces slime-causing microorganisms that corrode and damage paper-making equipment and degrade paper quality. Amelioration of these problems requires specialized application and monitoring of products designed to control slime. For the past five years, Nalco has sold an integrated water treatment system called OxiPRO, which consists of (1) chemical products; (2) online monitoring tools; and (3) on-site technical service by Nalco personnel.

The first chemical product in the OxiPRO system is a sodium hypochlorite "biocide" that kills microorganisms; it is registered under FIFRA and approved for this use by EPA. When added to water, sodium hypochlorite forms hypochlorous acid, an extremely reactive compound. The OxiPRO system introduces a second type of chemical product to reduce the reactivity of the acid; Nalco says that these products are proprietary "stabilizers" that are either ammonia- or urea-based. Neither party disputes that the "ammonia- and urea-based stabilizers used in the OxiPRO system do not have any biocidal activity themselves (that is, they do not kill microbes), nor are they registered as pesticides with EPA under FIFRA." Am. Compl. ¶ 21.

In developing the OxiPRO system, Nalco relied on an informal email exchange, dated September 8, 2005, in which EPA allegedly "confirmed that ammonia-based chlorine stabilizers do not require registration under FIFRA when used together with sodium hypochlorite." Id. ¶ 23. EPA advised that "[a]mmonia used in that manner is non-pesticidal." EPA Mem. in Support of Opp'n to Pl.'s Mot. for Prelim. Inj. ("EPA Mem.") [Dkt. # 5], Ex. 5 (Emails). Because Nalco's ammonia- and urea-based stabilizers function in nearly identical ways, Nalco did not specifically inquire as to the status of urea-based stabilizers. Am. Compl. ¶ 23.

However, in 2007, after Nalco's competitor Buckman Laboratories, Inc., registered a similar ammonia-based product as a pesticide, Nalco petitioned EPA to reconsider Buckman's registration.*fn5 EPA treated this request as a petition to cancel the registration of the Buckman product. EPA Mem. at 10. In September of 2008, Buckman cross-petitioned, urging EPA to prohibit further distribution and sale of Nalco's unregistered ammonia-based product immediately. In 2009, additional competitors, Ashland Inc. and its subsidiary Hercules Incorporated (collectively "Ashland"), also filed a petition asking EPA to prohibit Nalco from selling its ammonia- and urea-based products.*fn6

Thus, starting in 2007, EPA became caught in the middle of an ongoing fight for market share among Nalco, Buckman, and Ashland. EPA commenced a multi-year process to resolve whether ammonia- and urea-based products used in conjunction with sodium hypochlorite were pesticides that required registration under FIFRA. EPA did not interrupt Nalco's sales of ammonia- and urea-based products in the meantime. EPA convened multiple meetings to consider ammonia- and urea-based stabilizers and reviewed reams of submissions by Nalco, Buckman, and Ashland. In February 2010, EPA held an "Ammonia/Urea Meeting," "to discuss the competing petitions filed by the companies challenging the need for registration of ammonia and urea as pesticides (Nalco), and petitioning EPA to stop Nalco from marketing [its] ammonia and urea products (Ashland and Buckman)." See EPA Mem., Ex. 1 (Harrigan-Farrelly Decl.) at ¶ 18. EPA also opened a docket for public comment on whether or not ammonia and urea products for use in the pulp and paper industry should be required to be registered as pesticides. See id. at ¶ 19.

Only after a comprehensive review did EPA announce its conclusions in a December 16, 2010 Letter Determination:

The Agency has determined, based on the activity and fundamental purpose of adding ammonia and/or urea to chlorinated water to facilitate the production of chloramine for biocidal purposes, that Nalcon 60615 [Nalco's 15% urea-based product] and Nalcon 60620 [Nalco's ammonia-based product] are required to be registered under FIFRA . . . .

EPA has carefully reviewed the available information concerning how ammonia and urea function as part of biocidal control systems in the pulp and paperboard industry . . . . Neither ammonia nor urea, by itself, has pesticidal activity. Nonetheless, . . . EPA has determined that the three companies directly state or imply and intend that their products should be added to chlorinated water as part of a biocide control system in the pulp and paperboard industry where the material will interact with chlorine that is also added to the water. Once the ammonia or urea is added, it reacts with chlorine to ultimately form a new chemical substance, chloramine. (Urea in the presence of sodium hypochlorite or a chlorine source forms a chlorourea, which undergoes further chemical reaction to form chloramine.) As the three companies know, the chloramine formed following the addition of ammonia and urea to chlorinated water has pesticidal activity against microbial organisms. Moreover, compared to chlorine, chloramine exhibits extended antimicrobial activity. . . . [T]his occurs as a result of the chemical reaction between the chlorine and either the ammonia or urea and not as a result of physical action. . . . . . . Based on the fact that ammonia and urea are consumed in an irreversible chemical reaction and that a new chemical is formed, which possesses pesticidal activity[,] neither ammonia nor urea can be classified as stabilizers.

EPA Mem., Ex. 8 (Dec. 16, 2010 Letter) at 2-4 (emphasis added). EPA concluded that Nalco must submit "full application packages" for its ammonia- and urea-based products within 30 days. Id. at 5. Nalco did so, and EPA committed to expedited handling of the application "by early summer." See EPA Mem., Ex. 1 (Harrigan-Farrelly Decl.) ¶ 38.*fn7

On December 16, 2010, the same day that EPA issued its Letter Determination, EPA also issued a Memorandum Response to Comments, which provided EPA's responses to comments submitted as part of the public proceeding. In response to a question regarding potential "environmental and human effects" posed by ammonia and urea as used by Nalco products, EPA stated:

Based on its review of the applications to register the Ameribrom Inc. product for which Ashland is the distributor and the Buckman products, and based on the information provided about the ways in which the Nalco product is intended to be used, EPA does not think that these uses of ammonia or urea are posing risks of concern.

EPA Mem., Ex. 10 (Response to Comments) at 6 (emphasis added).

On December 29, 2010, EPA issued its first enforcement order based on the December 16, 2010 Letter Determination. While the December 29 Order prohibited Nalco from selling its ammonia- and urea-based products to new customers, it also expressly permitted Nalco to continue to provide all of its existing customers with ammonia- and/or urea-based products, pending registration of the products as pesticides. Pl.'s Mot. for Prelim. Inj. [Dkt. # 3], Ex. 2 (Dec. 29, 2010 Order) at 4.

Ashland sued EPA, challenging its December 29 Order and seeking to enjoin EPA from permitting Nalco to continue to sell its ammonia- and urea-based products to existing customers pending EPA registration. Months after issuing the December 2010 Order and days before issuing the April Stop Sale Order at issue here, EPA defended its December Order. EPA argued to the district court that it had made "eminently reasonable and lawful EPA enforcement choices" that were reflected in the December Order. Ashland Inc. v. EPA, 11-cv-487 (BAH), Defs.' Mem. in Suppt. of Mot. to Dismiss and Opp'n to Mot. for Prelim. Inj. [Dkt. #17] at 9 (filed Apr. 6, 2011). EPA further pointed out that Nalco had been selling ammonia- and urea-based products since 2007 and 2008, id. at 16, and asserted that EPA's December 2010 ...


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