March 30, 2016

US Supreme Court Hears Important Clean Water Act Case

Arnold & Porter Advisory

The US Supreme Court recently heard oral argument United States Army Corps of Engineers v. Hawkes Company, Inc., a case raising the issue of whether a Clean Water Act "jurisdictional determination" by the US Army Corps of Engineers (Corps) that private property contains "waters of the United States" (usually some sort of wetlands) is subject to judicial review. The Justices were actively engaged in the argument. Most of the Justices, led by Chief Justice Roberts and Justice Alito, appeared to be leaning toward the conclusion that jurisdictional determinations are the type of formal agency action that is subject to judicial review. Justice Kagan, on the other hand, suggested that Clean Water Act jurisdictional determinations are functionally no different from many other types of compliance guidance provided by federal agencies (such as opinion letters issued by the Internal Revenue Service), which are not subject to judicial review.

This case is another battle in the conflict between the Corps and the US Environmental Protection Agency (EPA), on the one hand, and private landowners and many states on the other, over what is seen by many as an effort to expand the Clean Water Act's jurisdictional reach beyond its intended boundaries to cover intrastate, non-navigable land and water features. In that context, one revealing and surprising statement at today's oral argument was a comment by Justice Kennedy, the author of key opinion in the Court's seminal Clean Water Act decision in Rapanos v. US, that the Clean Water Act is "arguably unconstitutionally vague."

In general, the Clean Water Act affords federal regulatory jurisdiction over so-called "waters of the United States." The determination that a particular parcel of land or water feature is jurisdictional (i.e., contains "waters of the United States") has important, real-world implications and triggers a host of regulatory obligations for land users, including requirements to obtain a permit from the Corps (for discharges of dredged or fill materials) or EPA (for discharges of pollutants). These permitting processes can be extremely costly and time-consuming, in some cases prohibitively so. And individuals that opt to use their land without first obtaining a permit risk potentially draconian criminal and civil penalties in government or private enforcement actions.

The difficulty for property owners, however, is that a precise definition of "waters of the United States" has proven elusive (as Justice Kennedy recognized at today's oral argument). Neither the courts nor the relevant federal agencies (EPA and the Corps) have been able to develop a clear test for differentiating jurisdictional waters from those that are beyond the Act's reach. See, e.g., Rapanos v. United States, 547 US 715 (2006) (rejecting agencies' assertion of authority over certain non-navigable waters in a split decision with no majority opinion). The agencies' latest attempt to define "waters of the United States" by regulation is currently being challenged in the courts by industry groups and states (arguing that the definition is overly expansive) and environmental groups (arguing that the definition is not expansive enough).

Faced with such uncertainty, property owners have two options: they may proceed without a permit and risk an enforcement action, or they may ask the Corps for a "jurisdictional determination" – an official Corps' determination as to whether particular land or water features qualify as "waters of the United States." According to the Corps' regulations and guidance, these jurisdictional determinations constitute "final agency action" for purposes of administrative appeals within the agency, see 33 C.F.R. § 320.1(a)(6), and remain valid for five years. The Corps has taken the position, however, that these jurisdictional determinations are not subject to judicial review. That is the issue raised in Hawkes.

In the Hawkes case, Hawkes applied for a Clean Water Act permit to expand its peat-mining operations in Minnesota. In 2011, the Corps issued a letter containing a "preliminary determination" that the property contained jurisdictional waters (even though the nearest traditional navigable water, the Red River of the North, was 120 miles away). After a series of meetings and site visits, in 2012, the Corps issued an "Approved Jurisdictional Determination," confirming that the property contained "waters of the United States." Hawkes administratively appealed the jurisdictional determination and a review officer issued a decision in Hawkes' favor. On remand, however, the Corps revised the jurisdictional determination but again concluded that the property contained jurisdictional waters.

Hawkes sued the Corps in 2013, alleging that the jurisdictional determination was arbitrary and capricious in violation of the Administrative Procedure Act (APA). The district court dismissed the suit, finding that there was no final agency action and thus the jurisdictional determination was not subject to judicial review. The Eighth Circuit reversed. The Eighth Circuit explained that the APA provides for judicial review of a "final agency action for which there is no other remedy in a court." 5 USC. § 704. In finding that the Corps' jurisdictional determination constitutes "final agency action," the Court applied the two-pronged test from the Supreme Court's 1997 decision in Bennet v. Spear,1 pursuant to which an agency action is final if it (1) marks the consummation of the agency's decision-making process (rather than being tentative or interlocutory in nature); and (2) is an action that determines "rights and obligations" or "from which 'legal consequences will flow.'"

The Eighth Circuit reasoned that a jurisdictional determination clearly meets the first factor: it constitutes the Corps' "definitive, official determination," the regulations provide that it constitutes "final agency action," and it is independent of the permitting decision (i.e., a party may obtain a jurisdictional determination without seeking a permit, and vice versa). The Court further concluded that a jurisdictional determination also meets the second factor because it "requires 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." Finally, citing the Supreme Court's 2012 decision in Sackett v. EPA,2 the Court concluded that there was no other adequate judicial remedy, rejecting the Corps' argument that Hawkes could: (1) complete the permit process and appeal if a permit is denied; or (2) commence peat mining without a permit and challenge the agency's authority to issue a compliance order or commence a civil enforcement action.

The parties arguments before the Supreme Court largely mirror their arguments before the Eighth Circuit. Both sides frame their arguments regarding "final agency action" using the two-pronged test from Bennett. The Solicitor General, representing the Corps, now concedes that the first prong of the test is met (reversing its position from below), but argues that the second prong is not met because no legal consequences flow from the jurisdictional determination. In particular, the government argues that the jurisdictional determination is simply an informational statement to help regulated entities make decisions about their conduct and as such provides a "valuable public service" (which the government might stop providing if the Court were to rule that jurisdictional determinations are immediately reviewable). Hawkes, on the other hand, reiterates the reasoning of the Eighth Circuit that a jurisdictional determination effectively requires a property owner to choose from one of three untenable options and thus must be considered final agency action subject to judicial review.

It was widely expected that the four Republican-appointed justices would side with Hawkes, and the argument was consistent with that expectation. Chief Justice Roberts and Justice Alito, for example, pointed out early in the argument that a Memorandum of Agreement between the Corps and EPA suggests that case-specific determinations, including jurisdictional determinations, are legally binding on the agencies. Both Justices also emphasized that the Corps does not provide these jurisdictional determinations "out of the goodness of its heart" (as Justice Alito put it); rather, as noted by Chief Justice Roberts, the Corps receives a "great benefit" from these determinations, which afford it leverage to effectively exercise its authority without effective judicial review. Justice Alito agreed, stating that these jurisdictional determinations expand the Corps' enforcement power and may even serve to alert the Corps to property that might be subject to its jurisdiction.

Justice Kennedy also seemed concerned about the lack of judicial review, particularly in light of the absence of clear guidance in the Clean Water Act about the extent of the Act's jurisdictional reach, which Justice Kennedy referred to, in a comment that surprised many in the Courtroom, as "arguably unconstitutionally vague" (presumably because "waters of the United States" has been so difficult to define.) Justice Kennedy appeared to suggest that the lack of clear guidance on the front-end makes jurisdictional determinations under the Clean Water Act different than other types of advisory opinions. Justice Kennedy did seem somewhat concerned, however, with the second prong of the Bennett test, and asked a number of questions aimed at clarifying the "legal consequences" $ndash; as distinct from practical consequences – that flow from a jurisdictional determination. Justice Kennedy inquired, for example, whether the permitting process itself constitutes a "legal consequence." Chief Justice Roberts suggested that one legal consequence is that an affirmative jurisdictional determination may affect the degree of willfulness assigned by a court in an enforcement proceeding if a regulated entity decides to proceed without a permit.

Among the four Democrat-appointed Justices, Justice Breyer appeared the most likely to also side with Hawkes. Justice Breyer emphasized that these jurisdictional determinations are clearly the official, definitive view of the agency: they are required by regulation, they are valid for five years, and there is a formal administrative appeal process. Thus, Justice Breyer reasoned, these are not just informal advisory opinions; they are formal decisions of the agency from which legal consequences flow, even if those legal consequences might not occur immediately (as Justice Breyer put it, "violate it and go to prison").

Justice Kagan was the only Justice who clearly appeared to side with the Corps. Justice Kagan explained that this was a difficult case because many federal agencies – including the Securities and Exchange Commission, the Internal Revenue Service, and the Federal Communications Commission – issue advisory opinions, and indeed we want government agencies to issue these types of advisory decisions because there is value to the public in understanding the government's position. Justice Kagan was concerned that if the Court were to find that the Corps' jurisdictional determinations are subject to judicial review, it could subject all agency advisory opinions to judicial review, which might cause agencies to cease offering these opinions (thereby depriving the public of accurate and reliable information).

Justice Thomas did not ask any questions, and Justices Sotomayor and Ginsburg, who did, were difficult to read. Tellingly, however, Justice Sotomayor did ask the government to suggest a narrow ground on which the Court could affirm the decision below in a manner that might be palatable to the government. All told, it does appear that there may be at least five votes to affirm the Eighth Circuit's decision that jurisdictional determinations are subject to judicial review (and at the very least the four votes to affirm the decision below by an equally divided court).

If the Supreme Court affirms the Eighth Circuit's decision, its decision will have broad ramifications for jurisdictional determinations under the Clean Water Act, and may encourage Corps officials to reach negotiated resolution of jurisdictional disputes to avoid the potential burden and cost of judicial review. Of course, judicial review is itself a costly endeavor. As such, if a landowner's main goal is to avoid the costs of the permitting process, it is still possible that many landowners will choose the greater certainty of the permitting process over the uncertainty of judicial review.

The ramifications of a pro-landowner decision in Hawkes to other environmental statutes is harder to predict. One somewhat analogous (though quite different in many respects) issue is whether cleanup orders issued by EPA under the Comprehensive Environmental Response, Compensation and Liability Act (CERCLA) are subject to pre-enforcement judicial review. These orders often require recipients to spend vast sums of money and expose the recipients to significant penalties if they refuse to comply. The Supreme Court has never addressed this issue, which is thematically similar to Hawkes. The key difference, however, is that CERCLA itself explicitly precludes such "pre-enforcement review." Accordingly, any effort to obtain pre-enforcement judicial review of CERCLA orders would be premised on constitutional rather than statutory grounds. Still, at least some members of the Court seem concerned generally about a situation in which the government issues edicts with legal and practical ramifications, and then resists efforts to have those edicts reviewed by the courts.

  1. 520 US 154 (1997).

  2. 132 S. Ct. 1367 (2012).

Subscribe Link

Email Disclaimer