Yesterday, the Supreme Court of the United States heard oral arguments in a case that tests the authority of a federal agency to effectively restrict a property owner’s land use choices without an opportunity for judicial review. U.S. Army Corps v. Hawkes[i] involves a jurisdictional determination from the United States Corps of Engineers (the Corps) that found that a landowner’s wetlands comprised “waters of the United States” subject to Clean Water Act jurisdiction. What difference did that make? For this landowner, as with many, that determination is the difference between using the land for a productive business or allowing the land to remain idle.
Under the Clean Water Act, a landowner cannot discharge dredged or fill material into “waters of the United States” without obtaining a permit from the Corps. These Section 404 permits are costly and time consuming. In fact, Justice Scalia once stated that the average applicant for an individual Corps permit “spends 788 days and $271,596 in completing the process.”[ii] The permit, however, is necessary, to avoid substantial monetary penalties and perhaps jail sentences for dredging and filling a known “waters of the United States.” If a landowner knowingly conducts prohibited activity on wetlands meeting the arguably ambiguous definition of a “waters of the United States,” he could face penalties in excess of $75,000 per day. These fines and penalties are possible even if the landowner did not believe the wetland to be jurisdictional. At the very least, the Corps will issue a compliance order. The landowner could also give up his fight and cede his wetlands to a reserve program.
There is arguably a middle ground. Corps regulations allow a landowner to request a jurisdictional determination (JD) from the agency. Once such a determination is requested, the Corps offers its opinion as to whether a wetland (or other waterbody) is a “waters of the United States.” A JD is not required before a landowner can discharge dredged or fill material into a wetland. And, according to the Corps, if a landowner is later found to have violated the CWA, the prior existence of a JD does not expose the landowner to additional penalties. But in the face of a JD stating that a wetland is a “waters of the United States,” would any prudent landowner embark on a project in opposition to that determination, one that could subject him to huge fines and possible jail terms? That is a preamble to the question that has now come before our highest court.
The landowner (although there are technically three landowners in the case, the term "landowner" will be used throughout) in the case purchased wetlands in northern Minnesota, seeking to mine them for peat moss used in landscaping. The landowner initially sought a permit from the Corps. The Corps, however, strongly discouraged the landowner from pursuing the permit or the project. Representatives told him that the permit process would be very costly, would require much additional study and data, and would likely not yield a permit in the end. The Corps sent a letter to the landowner advising him that it had made a “preliminary determination” that the property was a jurisdictional wetland. The landowner challenged the determination and the Corps issued its approved JD stating that the wetland was a “water of the United States” because of its “significant nexus” to the Red River, which is 120 miles away. The Corps considered the landowner’s challenge and issued a revised JD, stating that it was a “final Corps permit decision.” The landowner sought judicial review of the JD. And this is where the case became interesting.
The Administrative Procedures Act (the APA) provides that “agency action made reviewable by statute and final agency action for which there is no other adequate remedy in a court are subject to judicial review."[iii]
The Corps argued and the district court ruled that the JD was not “final agency action” subject to review. The landowner, the court asserted, had continuing rights. He could move forward with his permit application or launch his dredge and fill operation and see if the Corps took administrative action against him. If his permit was denied or if the agency took enforcement action, he could, the district court reasoned, then get his day in court. He could then challenge the “final agency action.”
On appeal, the Eighth Circuit disagreed. The court described essentially a Hobson’s choice. The court stressed the prohibitive cost of taking either of the alternative actions proposed by the Corps. “As a practical matter,” the court stated, “the permitting option is prohibitively expensive and futile.” The court found the second option even more inadequate. Landowners could not realistically initiate their project “and each day they wait for the agency to drop the hammer, they accrue huge additional potential liability.” The court continued, “Choosing now to ignore the Revised JD and commence peat mining without the permit it requires would expose them to substantial criminal monetary penalties and even imprisonment for a knowing CWA violation.” In reversing the district court’s ruling and holding that the Revised JD was a final agency action subject to immediate judicial review, the court’s language was terse:
Absent immediate judicial review, the impracticality of otherwise obtaining review, combined with “the uncertain reach of the Clean Water Act and the draconian penalties imposed for the sort of violations alleged in this case . . . leaves most property owners with little practical alternative but to dance to the EPA’s [or to the Corps’] tune."
The Corps appealed this Eighth Circuit ruling, the United States Supreme Court granted certiorari, and yesterday the parties came before the eight Justices of the Court.
The Corps began its argument simply, “A jurisdictional determination issued by the Army Corps of Engineers is not a final agency action because it does not order any person to do or refrain from doing anything and does not alter anyone’s legal rights and obligations.”
Justice Alito immediately asked whether the argument would be different if a statute or regulation made the JD binding on the Corps in future proceedings. He then referenced a “memorandum of understanding” between the EPA and the Corps stating that such determinations were binding upon the government in subsequent federal action or litigation. Although the Corps attorney responded by stating that the binding requirement only applied to “special case determinations,” Justice Roberts jumped in to contest that assertion.
Justice Sotomayor asked for an example of when the government—negative JD in hand—had sought enforcement against a landowner. The Corps’ attorney stated that he did not know if that had ever happened. When he argued that the landowner had the alternative to seek a permit to discharge fill lawfully, Justice Ginsberg stated, “Well, it’s very arduous and very expensive. So for a landowner who thinks, I shouldn’t be under this Clean Water Act at all, and now they have to go through this whole process, it’s going to take years and cost me a lot of money.”
Justice Breyer then surmised, “So what Justice Ginsburg said was, once this is in effect, okay, now what happens? The person who is subject to it has to take certain steps because of the law. One, spend $150,000 to try to get an exception and fail, or two, do nothing, violate it, and possibly go to prison. Those sound like important legal consequences that from an order that, in respect to the Agency is final, for it has nothing left to do about that interpretation.”
During the landowner’s argument, Justice Kagan likened the JD to a non-binding advisory opinion and the many forms of government opinion letters that “happen all over the place.” She specifically noted “tax letters” from the Treasury Department and other opinion letters from the SEC. Justice Alito quipped, “Well the premise of the question is that the Army Corps of Engineers is doing this out of the goodness of its heart; that this is a lot of work for them but they just want to be nice to landowners and that’s why they’ve set us this—this process.”
Judging by comments from the Justices, the landowner is not without a sympathetic ear. However, it is unclear how the Justices will ultimately rule. Without Scalia, a 4-4 decision would leave the Eighth Circuit’s ruling untouched. That means the landowner in this case could receive his administrative review. The ruling would not, however, set precedent for the rest of the country. It would leave in place a split between circuits. In 2014, the Fifth Circuit[iv] ruled that a jurisdictional determination was not an appealable order. The Ninth Circuit[v] reached a similar conclusion in 2008, although that case was decided before Sackett v. EPA[vi], a seminal Supreme Court decision in 2012 that granted landowners the right to judicial review of a compliance order. Although the Sackett decision was unanimous, its facts were a bit more ominous for the landowner. The property owner in that case was required to take action under the compliance order to restore a wetland or face stiff penalties. The property owner was given no right to appeal that compliance order. Supporters of the Corps in the Hawkes case assert that the “advisory” JD is nothing like a compliance order. It imposes no legal liability on the property owner. Supporters of the Eighth Circuit ruling contend it is essentially no different. The landowner has no appeal from an agency dictate that, in all practical terms, directs how he can or cannot use his property. The Supreme Court argument prompted several key questions: Does the JD have any legal significance to the landowner or are the concerns merely practical? Does that distinction make a difference?
As these arguments before the Supreme Court unfolded, the Clean Water Rule remains under review and subject to a nationwide stay. The Sixth Circuit recently ruled that it has the jurisdiction to decide the validity of the Rule, which was designed to “clarify” the reach of the Clean Water Act and provide a new definition for “waters of the United States.” Before that appeal works its way through the judicial system, we will receive a decision in the Hawkes case. And it will be impactful to landowners throughout the country…whichever way the Court rules.
[i] 782 F.3d 994 (8th Cir. 2015), cert granted Dec. 11, 2015.
[ii] Rapanos v. U.S., 547 U.S. 715, 721 (2006)
[iii] 5 U.S.C. §704.
[iv] Belle Co., LLC v. U.S. Army Corps of Eng’rs, 761 F.3d 383 (5th Cir. 2014), cert. denied, ___ U.S. ___, (U.S. Mar. 23, 2015).
[v] Fairbanks N. Star Borough v. U.S. Army Corps of Eng’rs, 543 F.3d 586 (9th Cir. 2008).
[vi] 132 S. Ct. 1367 (2012).
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