The industry has long known that the process for obtaining a Clean Water Act (CWA) Section 404 permit to discharge dredged or fill material into the “waters of the United States” can be, to say the least, both painful and expensive with no guarantee that a permit will ever be issued. However, the U.S. Supreme Court’s recent decision in U.S. Army Corps of Engineers v. Hawkes Co. Inc. should come as welcomed news. In that decision, the court ruled that property owners have the right to seek judicial review of jurisdictional determinations (JDs) regarding “waters of the United States” under the CWA. The decision both reins in the federal government’s regulatory jurisdiction under the CWA and signals the Supreme Court’s willingness to limit expansion of the CWA’s “ominous reach.”
The CWA prohibits the discharge of any pollutants, including dredge and fill material, into “waters of the United States” without a Section 404 permit. The determination of what waters and wetlands on a given property constitute “waters of the United States” is often a long and complicated process, and the scope of the CWA’s jurisdiction has long presented challenging uncertainty for industry and has been the subject of much litigation.
In Hawkes, three Minnesota peat-mining companies sought a Section 404 permit from the U.S. Corps of Engineers (Corps) to discharge material onto wetlands located on property the companies owned and hoped to mine. In the process of obtaining the permit, the companies obtained a revised “approved” JD from the Corps finding that the property contained “waters of the United States” because wetlands on the property had a “significant nexus” to the Red River of the North a full 120 miles away. Approved JDs affirmatively find the presence or absence of waters of the United States and are binding for five years on both the Corps and the Environmental Protection Agency (EPA), which share authority to enforce the CWA. After exhausting administrative appeals, the companies appealed the JD to a federal district court. The district court dismissed the case, concluding that a revised JD from the Corps was not a “final agency action for which there was no other adequate remedy in a court.” The Eighth Circuit reversed, and the U.S. Supreme Court upheld the Eighth Circuit’s reversal.
The Supreme Court’s analysis turned on two conditions that must be satisfied for an agency action to be “final” under the Administrative Procedure Act. 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 obligation have been determined, or from which legal consequences will flow.” Chief Justice Roberts rejected the federal government’s arguments that a party may proceed without a permit and argue in a subsequent government enforcement action that a permit is not required, based on a concern for civil and criminal liability risks. The government’s second argument was that the applicant may complete the permit process and then seek judicial review if the application is denied. The court rejected this argument, noting the significant costs involved in the permitting process.
The court acknowledged what industry has long known, that the reach of the CWA is “notoriously unclear, and the consequences to landowners even for inadvertent violations can be crushing.” The court noted that “[i]t is often difficult to determine whether a particular piece of property contains water of the United States, but there are important consequences if it does.” Specifically, the court found that the costs of obtaining a Section 404 permit can be significant, citing one study finding that the average applicant spends more than two years and more than $200,000 to complete the permitting process.
In the wake of the court decision, industry may want to revisit whether they are required to secure Section 404 permits for wetlands fill, as well as their strategies for doing so, given the court’s ruling that property owners have the right to challenge JDs in court early in the permitting process. This should also speed up the permitting timeline, saving applicants considerable time and expense.
Unfortunately, it’s not clear how long the good news will last. In finding that revised JDs are final agency action subject to court challenge, the Supreme Court relied heavily on the memorandum of agreement (MOA) between the EPA and the Corps that makes JDs binding on the Corps and the EPA for five years. As Justice Kennedy pointed out in the decision, that MOA “can be revoked or amended at the agency’s unfettered discretion.” Should the agencies alter the MOA to remove the five-year safe harbor or otherwise alter the effect of an approved JD, it could potentially reopen the question of whether a JD creates legal consequences sufficient to constitute final agency action subject to a legal challenge. As Justice Kennedy concluded in his concurring opinion, “the act ... continues to raise troubling questions regarding the government’s power to cast doubt on the full use and enjoyment of private property throughout the nation.”
The questions surrounding the lasting effect of the Hawkes decision are all the more important given the expanded interpretation of “waters of the United States” in a 2015 rule issued by the Corps and the EPA. The controversial rule, which is currently subject to legal challenges brought by several states and industry groups, significantly expands the scope of the CWA’s jurisdiction, by some estimates covering more than a million acres of private, state and federal property.
Unlike many CWA cases, the Hawkes decision provides some much needed clarity, and industry should take advantage of that while it lasts. Unfortunately, we’ll have to wait and see if that clarity has any staying power. For now, if you have a JD that you disagree with, you should consider filing a legal challenge quickly. If you question whether you need a permit, you may want to seek a JD as a first step. And of course, it is always a good idea to consult legal counsel when making these decisions.
Jason Moore is a senior counsel in Husch Blackwell’s Energy and Natural Resources group.