Bitumar USA Inc. v. Vermont Agency of Transp.

Citation: Not availableDocket: 449

Court: Vermont Superior Court; July 31, 2014; Vermont; State Appellate Court

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In Bitumar USA Inc. v. Vermont Agency of Transportation, the Vermont Superior Court addressed a motion for a preliminary injunction to prevent the Vermont Agency of Transportation (AOT) from implementing a decision that would prohibit Bitumar from supplying asphalt to contractors on state projects starting August 1. The court conducted a hearing on July 29, gathering testimonies from both parties.

Key findings established by the court include that Bitumar manufactures asphalt cement utilizing an ingredient called Rerefined Engine Oil Bottoms (REOB), which enhances the flexibility of asphalt for colder climates. REOB, which is refined from recycled engine oils, has been used for over 25 years and complies with the standards set by the American Association of State Highway and Transportation Officials (AASHTO) as well as AOT's temperature response requirements. Bitumar asserts that its product is less toxic and more environmentally friendly compared to other similar additives.

While research indicates potential concerns regarding REOB’s impact at higher concentrations, Bitumar uses it at 8% or lower. Studies show mixed results, with some suggesting that REOB can degrade pavement at higher concentrations while others indicate benefits at lower levels. Notably, a New Zealand study found no aging differences between REOB and non-REOB pavements. AOT’s own experts acknowledged the lack of conclusive evidence regarding REOB's long-term effects, with one reputable engineer affirming that REOB does not adversely affect asphalt durability and may even enhance it. The court concluded that no significant evidence suggests that Bitumar's use of REOB at its specified concentration poses a problem.

Bitumar has a long-standing history of selling asphalt products in Vermont without any reports of failure. Its major clients, Pike Industries and Whitcomb, have significant contracts with the Agency of Transportation (AOT), with Whitcomb projected to purchase $8 million and Pike $6 million in asphalt cement for 2014. AOT requires preapproval of Bitumar's products, which includes submitting quality control reports and samples; Bitumar's samples were approved for 2014. 

Despite this, AOT engineers have observed premature degradation of Vermont highways over the past nine years, including issues like discoloration and erosion. Investigations revealed the presence of REOB in some asphalt, prompting regional discussions among New England state transportation engineers. Consequently, AOT recommended a ban on REOB in state projects until its impact on road quality could be assessed. While some states, including Vermont, instituted bans, others did not, and there was no public input or formal rulemaking process prior to the Vermont ban, which takes effect on August 1.

AOT justified the ban due to concerns about the unknown effects of REOB and potential long-term cost savings from reduced repaving needs, despite acknowledging the higher costs associated with banning a cheaper material. Bitumar's asphalt, already mixed and awaiting orders, cannot be sold elsewhere due to its specific formulation for winter temperatures. If unable to sell to its primary clients, it risks significant financial losses, potentially amounting to millions, and may permanently lose its Vermont customer base. Transitioning to REOB-free asphalt would require substantial investment and time, further complicating Bitumar's situation.

The standards for issuing a preliminary injunction in Vermont law require consideration of four factors: the threat of irreparable harm to the movant, potential harm to other parties, likelihood of success on the merits, and the public interest. In contrast, the Second Circuit requires the movant to demonstrate irreparable harm and either a likelihood of success on the merits or serious questions regarding the merits with a favorable balance of hardships. Irreparable harm must be shown, typically understood as harm that cannot be addressed through monetary damages. 

In the case at hand, Bitumar faces significant financial losses if it cannot sell its Vermont-bound inventory, potentially amounting to millions of dollars in lost inventory and clients, alongside significant expenses to establish a new plant. Due to the State’s sovereign immunity, Bitumar argues it cannot recover these losses even if it prevails in the lawsuit, establishing a likelihood of irreparable harm.

The court also examines Bitumar’s claims regarding the necessity for rulemaking by the Agency of Transportation (AOT) and its assertion of a due process violation. While AOT contends that recent amendments to the statute eliminate the need for rulemaking, the court finds it unnecessary to resolve this issue, as Bitumar's due process argument suffices to determine the motion. AOT is permitted to set contract terms but must adhere to legal requirements in its decision-making processes. The court emphasizes that even within statutory discretion, there are limits to prevent arbitrary decisions, indicating that Bitumar has standing to challenge AOT's actions.

AOT approved Bitumar's asphalt samples and quality control plan for 2014, establishing a potential property interest for Bitumar. AOT's subsequent June letter revoked this approval without a hearing, differing from prior cases cited by AOT. This situation parallels Toxco Inc. v. Chu, where a government contractor's approval created a property interest warranting due process protections. The court indicates that Bitumar may demonstrate reliance on AOT's pre-approval, arguing entitlement to due process before contract termination. The court believes Bitumar is likely to succeed in its claim, stating that AOT cannot revoke its approval without due process. The court finds Bitumar's potential injury from the REOB ban significantly outweighs any public interest, as AOT lacks substantial evidence linking REOB to road degradation. Consequently, a preliminary injunction is granted, suspending AOT's REOB ban until further court order. AOT is to file an answer by August 20, and the parties must establish a discovery schedule by September 2.