Supreme Court Clears Path for Appeal of Clean Water Act Jurisdictional Determinations

An approved jurisdictional determination (“JD”) by the U.S. Army Corps of Engineers (“Corps”) can be appealed to Federal District Court according to a unanimous United States Supreme Court decision issued May 31, 2016, U.S. Army Corps of Engineers v. Hawkes Co. Inc. The decision is particularly significant given the Corps and EPA’s expansive interpretation of the definition of waters of the United States in existing agency guidance and in the now-stayed Waters of the United States rule. It raises the question as to how parties may approach jurisdictional issues in the future. For example, will the Corps receive additional requests for approved JD’s because of the ability to have a judicial appeal? How will the Corps’ approach making approved jurisdictional determinations in the future?

The Corps issues both preliminary JD’s and approved JD’s. A preliminary JD simply indicates that there may be waters of the United States on a parcel of property, but an approved JD definitely conveys the Corps’ position on the presence or absence of such waters. Approved JDs can be administratively appealed, but the Corps has always taken the position that there is no right of judicial appeal of such a determination. Under the Administrative Procedures Act final agency action by the Corps can be appealed to the District Court if it is one from which legal consequences flow and there are no other alternatives than such an appeal.

The Hawkes Company wanted to mine peat on its property. Chief Justice Roberts notes that peat “is widely used for soil improvement and burned as fuel. It can also be used to provide structural support and moisture for smooth, stable greens that leave golfers with no one to blame but themselves for errant putts.” While the case is not about removing excuses for bad putting, it does reflect that the mining of peat had value. The Hawkes Company requested a jurisdictional determination in conjunction with a Clean Water Act 404 permit application. The majority opinion states that the Corps issued an approved jurisdictional determination that concluded the subject property contained a “water of the United States” because its wetlands had a “significant nexus” to the Red River of the North, located some 120 miles away. The reference to this fact in a fairly brief opinion could indicate the majority’s concern over the expansive federal intrusion into private property rights.

In what could be considered the understatement of the decade Chief Justice Roberts, in his majority opinion, wrote, “It is often difficult to determine whether a particular piece of property contains waters of the United States, but there are important consequences if it does.” The Court applied Bennett v. Spear, 520 U.S. 154 (1997) to determine whether the agency action gave rise to judicial review. Bennett v. Spear sets out two conditions that must be satisfied. First, the action must mark the “consummation of the agency’s decision making process,” and second the action must be one by which “rights or obligations have been determined or from which legal consequences flow.”

The Corps did not dispute that the JD was a final agency action. In fact an approved JD is good for five years. However, the Court considered the impact of a negative JD where the Corps concludes the property would not constitute waters of the U.S. An approved JD creates a safe harbor. That action has direct and appreciable legal consequences because it is binding on the Corps and EPA through a memorandum of agreement. Likewise an affirmative JD represents the denial of the safe harbor.

The Court found that alternatives to APA judicial review urged by the Corps were not adequate at all. The Corps contended that Hawkes had two alternatives: discharge fill material without a permit risking EPA enforcement during which they could argue no such permit was required, or apply for a permit and seek judicial relief if dissatisfied.

The case may signal that the Court is getting more and more concerned about Agency overreach in matters involving waters of the United States. Certainly the Court in Sackett v. EPA provided a judicial appeal of EPA administrative orders related to filling waters of the United States, and now this case. The Hawkes Court was aware of the 6th Circuit stay of the waters of the United States rules and footnoted the rules. Notwithstanding any foreshadowing, the Court’s opinion and the concurring opinions of the other justices, make it clear that this case was not even a close call.

Supreme Court Will Determine Whether Corps Jurisdictional Determination Can Be Appealed

Can you appeal a U.S. Army Corps of Engineers’ jurisdictional determination (“JD”) that a water feature constitutes waters of the United States? The Administrative Procedures Act allows such an appeal if it is determined that no further action is available in court. However, the Corps has historically taken the position that its jurisdictional determination is not appealable and it is only when a permit is denied that one can challenge the jurisdictional determination. On December 11, 2015, the Supreme Court granted certiorari in United States Army Corps of Engineers v. Hawkes Co., Inc. Docket No. 15-290. The Petition was filed by the government after the United States Court of Appeals for the 8th Circuit determined that a JD was a final agency action and appealable. Because other circuit courts disagreed the Supreme Court granted certiorari to resolve the split among the circuits.

Hawkes Co. wanted to expand their peat mining operations to include property that the Corps believed was a wetland and waters of the United States. To avoid legal problems they sought a JD from the Corps. After obtaining an option to purchase property subject to regulatory approval, representatives from Hawkes met with the Corps and the Minnesota Department of Natural Resources (MDNR) to discuss their plans. Hawkes applied to the Corps for a Clean Water Act Section 404 permit. The Corps representatives urged Hawkes to abandon the plan, emphasizing the delays, cost, and uncertain outcome of the permitting process. One of the developers responded that he had an option to purchase and intended to proceed. The Corps then sent a letter advising Hawkes that it had made a “preliminary determination” that the wetland was a regulated water of the United States and, “at a minimum,” an environmental assessment would be required. The applicants met with Corps representatives and were told a permit would take years and the process would be very costly. During a site visit subsequent to that meeting another Corps representative told a Hawkes employee that “he should start looking for another job.” The Corps sent Hawkes a letter advising that nine additional information items costing more than $100,000 would be needed, including hydrological and functional resource assessments and an evaluation of upstream potential impacts. Later the Corps representatives met with the land owner and urged that he sell the property to a “wetlands bank,” advising that an environmental impact statement would likely be required, delaying the issuance of any permit for several years.

In February 2012 the Corps issued an Approved JD concluding the property was a water of the United States because of its “significant nexus” to the Red River. The Plaintiffs filed an Administrative Appeal and the Corps’ Administrative Judge reversed the Corps and remanded the case to the Corps District. However, the Corps issued a revised JD reinstating the original JD with a few more facts and stated it was their “final Corps permit decision” with no additional administrative appeal. The Plaintiffs then filed suit in federal district court in Minnesota to challenge the final agency action. However, the Corps moved to dismiss saying it was not a final agency action that was appealable, and the District Court agreed.

Corps regulations provide that an Approved JD “constitute[s] a Corps final agency action.” 33 C.F.R. § 320.1(a)(6). The Corps’ Regulatory Guidance Letter No. 08-02, at 2, 5, describes an Approved JD as a “definitive, official determination that there are, or that there are not, jurisdictional ‘waters of the United States’ on a site,” and stated that an Approved JD “can be relied upon by a landowner, permit applicant, or other affected party . . . for five years.”

In the seminal case Bennett v. Spear, 520 U.S. 154, 177-78, 117 S. Ct. 1154, 137 L. Ed. 2d 281 (1997) the Supreme Court established the grounds for judicial review of agency action:

As a general matter, two conditions must be satisfied for agency action to be “final”: First, the action must mark the consummation of the agency’s decisionmaking process — it must not be of a merely tentative or interlocutory nature. And second, the action must be one by which rights or obligations have been determined, or from which legal consequences will flow.

The Corps argued that the revised JD may have met the first prong of Bennett v. Spear, that it was the consummation of the agency’s decision making process, but not the second. That is, it was not a decision by which rights or obligations have been determined or from which legal consequences flow. For example there was no permit denied nor was there any enforcement order based on the JD.

The District Court agreed with the Corps. The Eight Circuit Court of Appeals, however, referring to Sackett v. EPA, (132 U.S. 1367, 73 ERC 2121, 2012 BL 67234 (U.S. 2012), disagreed. The Court stated that the Revised JD would require appellants either to incur substantial compliance costs (the permitting process), forego what they assert is lawful use of their property, or risk substantial enforcement penalties.

While it was widely speculated that the Supreme Court would grant certiorari in this case, both sides are strident that their respective positions are sound. Argument is expected in March or April of 2016.

New Rule Defining “Waters of the U.S.” Draws New Battle Lines Between the Federal Government and States

The Environmental Protection Agency (“EPA”) and U.S. Army Corps of Engineers (“Corps”) published their Final Rule defining “waters of the United States” on June 29, 2015.  The rule becomes effective on August 28, 2015. The rule was pre-published on May 27, 2015 by EPA and the Corps (the “Agencies”), and it has already received unprecedented attention. The Clean Water Act’s jurisdiction relates to “navigable waters” which is defined by Congress only as “Waters of the United States or the territorial seas.” This vague definition has created substantial confusion to stakeholders.   A number of U.S. Supreme Court cases attempted to provide clarification, but ensuing regulatory guidance from the Agencies just seemed to muddy the water more.

So the Agencies decided to do two things. First, they decided that their definition of Waters of the United States should be a duly promulgated federal rule, and second, they hoped to clear up any confusion by deeming just about anything that is wet as waters of the United States.  The rule will affect many industries, including construction, agriculture, energy development and transmission, transportation, and housing.

The Agencies’ rule for the first time deems all tributaries to traditional navigable waters regardless of size as jurisdictional as long as it has a bed, bank and an ordinary high water mark.   The universe of these features is significant. For adjacent wetlands the rules expanded the definition to include “neighboring” wetlands. A neighboring wetland includes all waters within the floodplain of, or within specified distances from the ordinary high water mark of, traditional navigable waters, their tributaries, and impoundments. While the rule provides some exceptions, such as swimming pools and some roadside ditches, the definition is widely regarded by the regulated community as greatly expanding the universe of jurisdictional waters.

One day after the rules were published, two separate lawsuits were filed.   In what might be considered a battle of the states versus the federal government, 22 states claim that the Final Rules usurp states’ rights. In the first case, Georgia, et al. v. McCarthy, nine states, including all but two Region IV states, are plaintiffs. Claiming the rules infringe on state sovereignty, these States are asking the Court to vacate the rules. To get a flavor of the case, one of the allegations in the Georgia lawsuit states:

The Agencies’ unlawful attempt to expand their authority to broad categories of non-navigable, intrastate waters and lands imposes great harm upon the States and their citizens. Once a water is determined to fall within the Agencies’ authority, this determination eliminates the States’ primary authority to regulate and protect that water under the State’s standards, and imposes significant federal burdens upon the States. Such a federal jurisdictional finding also places significant burdens upon homeowners, business owners, and farmers by forcing them to obtain costly federal permits in order to continue to conduct activities on their lands that have no significant impact on navigable, interstate waters.

The second case, North Dakota, et al. v. McCarthy, includes 13 states. Two of the states do not have delegated NPDES permitting authority under Section 402 of the Clean Water Act. They allege, among other things, that Agencies failed to meaningfully consult with the states and the rule will place a burden on those states by requiring much more permitting. One of the allegations states:

The Final Rule will harm the States in their capacity as owners and regulators of the waters and lands within their respective boundaries. The States’ use and management of the waters and lands they own or regulate will be subject to greater federal regulation under the Final Rule.

While states have been parties to other environmental lawsuits challenging the federal government, these lawsuits are somewhat unprecedented in the appeal for State’s rights and the 10th Amendment. The battle lines are now drawn by 22 states. Based on comments to the Proposed Rule, it is clear that a number of other states are with them in spirit. Of course, it is expected that industry groups will also challenge the rule, but these cases highlight what many states believe is an erosion of the concept of cooperative federalism.

Supreme Court Halts Implementation of EPA Rule on Mercury Emissions from Electric Power Plants: The Practical Effects Are Debatable

On Monday, the U.S. Supreme Court halted further implementation of a U.S. EPA’s regulation limiting mercury and other hazardous air toxic emissions from coal- and oil-fired electric power plants. In a 5-4 decision, the majority held that EPA failed to take costs into account when deciding to regulate power plants under this rule, thereby imposing substantial and costly emissions limits and control requirements on them. However, the Court did not strike down the rule, instead remanding the case for further proceedings.   The Opinion can be viewed here.

Members of Congress and industry officials cheered the decision as a significant limit on EPA authorities (The Hill), but the effects are not quite so clear. Under the procedures used to bring the litigation, the rule was not suspended pending the outcome of the court challenge, meaning that the challenged rule has been in effect for several years. As a consequence, much of the power industry has already taken extensive and expensive steps to comply. Thus, while EPA will find it necessary to address deficiencies associated with the rule, specifically its economic impacts, this may be too late for most power plants. (For example, The Anniston Star’s article on the likely impact on Alabama Power).

The Court’s decision turned on EPA’s failure to assess the potential costs of the rule at the outset of the rulemaking process when the Agency made the initial decision to apply the regulation to the power industry. Although EPA sought to supplement the rulemaking record with an economic analysis done after the rule was promulgated, the Court said this was too late. However, the opinion left open the possibility that EPA could revive the rule and made clear that it was not requiring a formal cost benefit analysis (which would effectively require attribution of costs and benefits to each advantage and disadvantage). The assessment of costs is left to EPA’s discretion so long as it is exercised reasonably.

Prospectively, the ruling may have a greater impact on future rules related to the electric power industry. While the mercury rule’s impacts have already been substantially imposed, and are not likely to be removed entirely, or even modified substantially, future rule making associated with this industry and coal combustion generally will almost certainly receive greater scrutiny from the standpoint of costs related to benefits.

Georgia General Assembly Ends Water and Land Conservation Tax Credits

At the end of its recent session, the Georgia General Assembly passed HB 464 by unanimous votes to cap the land conservation tax credit at $30 million for 2016 and then eliminate it altogether at the end of 2016. HB 464 also repeals the tax credits for water conservation facilities and ending groundwater usage, effective at the end of 2016.

The original bill, introduced by Representative Bruce Williamson (R-115; Monroe), did not address the land conservation tax credit. Section 1 of the original bill repeals the tax credit for water conservation facilities; Section 2 ends the tax credit for shifting from ground-water usage; both repeals are effective at the end of 2016. The House Ways and Means Committee added Section 3 to the bill which caps and sunsets the land conservation tax credit at the end of 2016.

The bill was sent to the Governor on April 7, but so far, he has not signed it.

New Year Brings New Coal Ash Regulations and New Legislative Proposals

December 19, 2014 marked the deadline for the Environmental Protection Agency (EPA) to announce its final decision regarding a new regulatory scheme for coal ash disposal (Coal Combustion Residuals or CCR). The new regulations are to focus on the disposal of coal ash.

The pressure for new regulations began mounting after the rupture of a Tennessee power plant in 2008 which sent over 1 billion gallons of coal ash into nearby Tennessee rivers. Subsequently, on February 2, 2014, a Duke Energy plant released approximately 39,000 tons of coal ash into the Dan River in North Carolina.

During the lead up to the EPA decision, interest groups have been battling over whether coal ash should be categorized as solid non-hazardous waste or hazardous material. This ongoing battle will likely foreshadow legislative arguments we can expect in 2015.

In the past, Representative, David McKinley of West Virginia and Senator John Hoeven of North Dakota both have been active in introducing legislation allowing states to regulate coal ash as non-hazardous waste. Additionally, Senator James Inhofe, the incoming chairman of the Senate Committee on Environment and Public Works has stated that states have “responsibly and effectively managed coal ash” without federal intervention.

Further, Inhofe has stated, “[i]n the new Congress, my colleagues and I will intently review the impacts this rule could have to our economy and electricity reliability as well as highlight how states are leading the way on properly disposing and recycling coal ash.” See Sean Cockerham, EPA rules on coal ash may disappoint environmentalists, buoy industry, ColumbusLedger-Enquirer (Dec. 17, 2014). Following his re-election, Majority leader Mitch McConnell stated that he feels a “deep responsibility” to stop the EPA from regulating carbon emissions at coal-burning power plants. McConnell said his top priority is “to try to do whatever I can to get the EPA reined in.” See Sam Youngman, McConnell: If Rand Paul runs for president, ‘he’ll be able to count on me’, Lexington Herald-Leader (Nov. 6, 2014).

Florida Supreme Court Rules in Favor of Water Management District

On May 22, 2014 the Florida Supreme Court in South Florida Water Management District v RLI Live Oak, LLC, No. SC12-2336 ruled that in circumstances where a Florida Statute authorizes a state governmental agency like the Water Management District to recover a civil penalty in a judicial forum, then the agency must only prove the violation by a preponderance of the evidence. In this case the applicable statue did not specify the agencies burden to prove the violation.  The Supreme Court distinguished its previous ruling in Department of Banking & Finance V Osborne Stern & Co. 670 So. 2d 932 (Fla. 1996) and held that the “clear and convincing evidence” burden is not applicable to the statute enforced by the Water Management District.  At the trail court, the Water Management District successfully obtained civil penalties for  the unauthorized filling of wetlands. The Supreme Court’s ruling will make it less onerous on Water Management Districts in Florida to successfully win civil penalties for wetland violations.

EPA Revises Construction and Development Stormwater

In March, EPA published a new Final Rule that revised a 2009 Final Rule addressing stormwater discharges from its Construction and Development (C&D) point source category.  The March revision withdrew the numeric turbidity effluent limitation and monitoring requirement and made certain other changes and clarifications.  (Federal Register: March 6, 2014 Federal Register)  The revised rule results from litigation filed by a number of entities, Wisconsin Builders Association, et al. v. EPA, Case Nos. 09-4113, 10-1247, and 10-1876 (7th Cir.), and specifically from a settlement agreement entered between the parties on December 10, 2012.  (Settlement Agreement).

While several parts of the original 2009 Final Rule raised concerns, attention focused substantially on the numeric limit for turbidity.  For the first time in C&D regulation, EPA imposed a standard or limit of 280 nephelometric turbidity units (NTU) for  discharges from a C&D site.  Historically, turbidity impacts from a construction site have been evaluated on a comparative basis using in-stream turbidity measured upstream and compared with a similar measurement downstream from the construction activity.  Ordinarily any increase of 50 NTU or less would be considered to comply with the development’s construction stormwater permit or regulatory obligations.  The Associated General Contractors of America estimated that the numeric limit for turbidity would have imposed a cost of around $10 billion dollars a year.  Thus, the industry focused on this number in the challenge to the final rule, raising specific questions about the scientific basis EPA relied on in developing the numeric limit.  (Stormwaterone   Article).  The concerns raised specifically about the numeric limits were prompted EPA to stay that portion of the rule, and neither EPA nor the various authorized States were required to implement the limit while the court challenges proceeded leading to the Settlement Agreement.

Despite withdrawing the numeric turbidity limit, EPA indicated in its Summary of the revised Rule that it has reserved the section for potential revision if it decides to “. . . promulgate additional effluent limitations guidelines and monitoring requirements in a future rulemaking.”  (Subsection II. B. 8., 79 FR 44, p. 12665).  Thus, the idea of numeric turbidity limits may reappear as the Agency continues to evaluate the issue.

Federal Court of Appeals Strikes Down A Portion of the EPA’s Rule Limiting a Court’s Authority for Imposing Civil Fines for Equipment Failures

Federal Court of Appeals strikes down a portion of the EPA’s rule limiting a Court’s authority for imposing civil fines for equipment failures.  While upholding portions of EPA’s new  rules for air toxic emissions for cement kilns, in a ruling dated April 16th the District of Columbia Court of Appeals struck down the provision that limited the Federal Courts from imposing civil penalties involving citizen suits for violations of the Clean Air Act for unavoidable equipment malfunctions. The Federal Courts previous 2008 decision  finding unlawful  EPA’s earlier  attempt to “exempt” compliance with emissions standards during equipment startups, shutdowns and malfunctions,  is now joined with this recent decision to strip the new EPA rule of providing the opportunity to claim an affirmative defense for malfunctions.  Commentators have opined that this ruling will cause EPA to consider removing similar affirmative defenses from other rules which may apply to power plants and boilers. The obvious ramification of this ruling is that the applicable industries may face citizen suits for unavoidable and unintended  violations of emission standards with no particular guidance given to the Federal Courts on how to deal with those equipment malfunctions.

Seventh Circuit Highlights Challenges To Class Certification In Environmental Litigation

Property owners in the town of Roxana, Illinois, a small village on the Mississippi River across from St. Louis, filed suit against Shell Oil Company and ConocoPhillips.  The property owners alleged that a refinery owned by Shell and later ConocoPhillips leaked benzene and other petroleum-based contaminants into the groundwater under their homes.  The property owners sought the lost value in their homes as a result of the groundwater contamination.

The Illinois District Court Judge certified the property owners as a class under Rule 23, Federal Rules of Civil Procedure.  On appeal, the Seventh Circuit reversed.  Parko v. Shell Oil Co., 2014 WL 187184 (7th Cir., January 17, 2014).  The Circuit Court concluded that the plaintiff/property owners failed to demonstrate the “predominance of issues common to the entire class over issues that vary among the members of the class” – a critical element in class certification.

Once Shell and ConocoPhillips challenged the plaintiffs’ injury and damage model, the Circuit Court concluded that the trial judge should have investigated the predominance of issues and taken evidence on the matter.  Predominance of issues is not merely a pleading requirement.  The questions the Circuit Court wanted answered were as follows:

[I]f the defendants are right, there is no common issue, only individual issues that will vary from homeowner to homeowner:  is there benzene in the groundwater beneath his home at a level of concentration that if the groundwater were drunk would endanger health (and is there any possibility it would enter the water supply); what is the source of the benzene in the groundwater beneath a given home (that is, who is the polluter who caused the groundwater to become polluted); could the presence of the benzene in that concentration cause any other form of harm; has the presence of the benzene reduced the value of his property; if so, how great has the reduction been.

The court concluded that “[i]t is difficult to see how these issues can be managed in the class action format.”

Before a trial court certifies a class, particularly in the environmental context, it must be prepared to engage in a rigorous analysis of plaintiffs’ proposed methodology for proving injury and damages.

For more information on environmental law topics, please contact one of the Burr & Forman team members for assistance. We are happy to answer any questions or concerns you may have.