Friday, January 4, 2019

Top 10 Developments in Ag Law and Tax for 2018 – Numbers 8 and 7


The journey continues through the biggest developments in agricultural law and taxation for 2018.  As I mentioned in Wednesday’s post, these developments are selected based on their impact to ag producers, agribusinesses and associated professional service businesses on a nationwide basis.  Today I look at what I view as the Eighth and Seventh most important developments of 2018.


Number 8 – COE Wetland Manuals and Congressional Budget Acts Result in Frozen Dirt Being a “Navigable Wetland” 

Tin Cup, LLC v. United States Army Corps of Engineers, 904 F.3d 1068 (9th Cir. 2018).

According to its 1987 Manual for delineating wetlands, before the U.S. Army Corps of Engineers (COE) may assert jurisdiction over an alleged wetland, it must find that the area satisfies the three wetland criteria of hydric soil; predominance of hydrophytic vegetation; and wetland hydrology (soil saturation/inundation). Wetland hydrology under the 1987 Manual requires either the appropriate inundation during the growing season or the presence of a primary indicator. Table 5 of the 1987 Manual indicates a nontidal area is not considered to evidence wetland hydrology unless the soil is seasonally inundated or saturated for 12.5 percent to 25 percent of the growing season. A “growing season” is defined as a season in which soil temperature at 19.7 inches below the surface is above 41 degrees Fahrenheit. The 1987 Manual lists six field hydrologic indicators, in order of decreasing reliability, as evidence that inundation and/or soil saturation has occurred: (1) visual observation of inundation; (2) visual observation of soil saturation; (3) watermarks; (4) drift lines; (5) sediment deposits; and (6) drainage patterns within wetlands.

In 1989, the COE adopted a new manual. The 1989 Manual superseded the 1987 Manual. The delineation procedures contained in the 1989 manual were less stringent. Thus, it became more likely that the COE could determine that a particular tract contained a regulable wetland. This change in delineation techniques caught the attention of the Congress which barred the use of the 1989 Manual via the 1992 Budget Act. Pub. L. No. 102-104, 105 Stat. 510 (Aug. 17, 1991). Specifically, the 1992 Budget Act prohibited the use of funds to delineate wetlands under the 1989 Manual "or any subsequent manual not adopted in accordance with the requirements for notice and public comment of the rulemaking process of the Administrative Procedure Act."

The 1992 Budget Act also required the COE to use the 1987 Manual to delineate any wetlands in ongoing enforcement actions or permit application reviews. In the 1993 Budget Act, the Congress again addressed the issue by stating that, “None of the funds in this Act shall be used to identify or delineate any land as a "water of the United States" under the Federal Manual for Identifying and Delineating Jurisdictional Wetlands that was adopted in January 1989 or any subsequent manual adopted without notice and public comment. Furthermore, the Corps of Engineers will continue to use the Corps of Engineers 1987 Manual, as it has since August 17, 1991, until a final wetlands delineation manual is adopted.” Thus, it was clear that Congress mandated that the COE continue to use the 1987 Manual to delineate wetlands unless and until the COE utilized the formal rulemaking process to change the delineation procedure. While the Congress mandated the use of the 1987 Manual to delineate wetlands, it also appropriated funds to the U.S. Environmental Protection Agency (EPA) to contract with the National Academy of Sciences for a review and analysis of wetland regulation at the federal level. See Department of Veterans Affairs and Housing and Urban Development and Independent Agencies Appropriations Act of 1993, Pub. L. 102-389, 106 Stat. 1571 (Oct. 6, 1992); H.R. Rep. No. 102-710, at 51 (1992); H.R. Conf. Rep. No. 102-902 at 41.

This resulted in a report being published in 1995 containing a suggestion that the 1987 Manual either eliminate the requirement of a “growing season” approach to wetland hydrology or move to a region-specific set of criteria for delineating wetlands. Consequently, the COE began issuing regional “supplements” to the 1987 Manual that provided criteria for wetland delineation that varied across the country. For instance, in the COE’s 2007 Alaska Supplement, the COE eliminated the measure of soil temperature contained in the 1987 Manual and replaced it with “vegetation green-up, growth, and maintenance as an indicator of biological activity occurring both above and below ground.”

In this case, the plaintiff was a closely-held family pipe fabrication company in Alaska that sought to relocate its business for expansion purposes. The plaintiff found a suitable location (a 455-acre tract in North Pole) where it would need to lay gravel and construct buildings as well as a railroad spur. Because gravel is contained within the regulatory definition of “pollutant” under the Clean Water Act (CWA) and because the tract was purportedly a “wetland,” the plaintiff had to obtain a discharge permit so that it could place gravel fill on the property before starting construction. The plaintiff received a permit in 2004 and, pursuant to that permit, cleared about 130 acres from the site. In 2008, the plaintiff submitted another permit application to place gravel fill on the site. The COE issued a new jurisdictional determination in 2010, concluding that wetlands were present on 351 acres, including about 200 acres of permafrost – frozen soil. The COE granted the plaintiff a discharge permit to place gravel fill on 118 acres, but included mitigation conditions that the plaintiff objected to.

The plaintiff sued on the basis that the COE’s delineation of permafrost as a wetland was improper and, thus, a discharge permit was not necessary. The COE delineated the permafrost on the tract as wetland based on its 2008 Alaska Supplement. U.S. Army Corps of Engineers, Regional Supplement to the Corps of Engineers Wetland Delineation Manual: Alaska Region (Version 2.0) (Sept. 2007). However, the COE’s 1987 Manual specifically excludes permafrost from the definition of a wetland. The plaintiff argued that the Congress had instructed the COE to continue to use the wetland delineation standards in the 1987 Manual until the COE adopted a “final wetland delineation manual” as set forth in the 1992 and 1993 Budget Acts, as noted above. Thus, because permafrost does not have the required “growing season” (it never reached 41 degrees Fahrenheit at a soil depth of 19.7 inches) it cannot be a wetland. The plaintiff pointed out that by virtue of the issuance of regional supplements to the 1987 Manual, the COE had expanded its jurisdiction over private property by modifying the definition of a “wetland.” Key to the plaintiff’s argument was the point that the Supplement was not a new manual that had been developed in accordance with the formal rulemaking process (e.g., notice, comment, and public hearing). It also was never submitted to the Congress and the Government Accountability Office which, the plaintiff noted, the Congressional Review Act requires before any federal governmental agency rule can become effective. 5 U.S.C. Ch. 8, Pub. L. No. 104-121, §201.

The trial court ruled against the plaintiff, holding that the COE could rely on the 2008 Supplement when delineating a wetland and determining its jurisdiction. The trial court determined that the Budget Acts have no force beyond the funds that they appropriate. That meant that the COE could delineate wetlands in accordance in whatever manner it determined – the 1987 Manual or any subsequent Manual or supplemental guidance that it issued. On appeal, the appellate court affirmed, holding that the 1993 Budget Act did not require the COE to continue using the 1987 Manual to delineate wetlands. The appellate court stated that there is a “very strong presumption” that if an appropriations act changes substantive law, it does so only for the fiscal year for which the bill is passed” unless there is a clear statement of futurity. Because the 1993 Budget Act contained no such statement, the Court held that the requirement for use of the definition of a growing season in accordance with the 1987 Manual expired at the end of the 1993 fiscal year. 

The appellate court allowed the COE to expand its jurisdiction over wetlands.  That inserts more uncertainty into the already murky legal status of WOTUS.  Perhaps in 2019, the U.S. Supreme Court will hear the case.  It’s an important one in terms of holding government agencies accountable to the will of the Congress. 


Number 7 – To Be “Critical Habitat” Under the ESA, the Habitat Must Be Habitable

Weyerhaeuser Co. v. United States Fish & Wildlife Service, 139 S. Ct. 361 (2018), rev’g., Markle Interests, L.L.C. v. United States Fish & Wildlife Service, 827 F.3d 452 (5th Cir. 2016)

Under the Endangered Species Act (ESA), when a species of plant or animal is listed as endangered or threatened, the Secretary of the Interior must consider whether to designate critical habitat for the species.  “Critical habitat” is the specific area within the geographical range occupied by the species at the time of listing that is essential to the conservation of the species.  Critical habitat may also include specific areas outside the geographical area occupied by the species at the time it is listed if the USFWS determines that such areas are essential for conservation of the species.  It can also include presently “unoccupied critical habitat.”  But, must a designated habitat area be an area where the endangered or threatened species can survive?  If not, then even more private land could be subjected to regulation under the ESA.  The issue made it all the way to the U.S. Supreme Court in 2018.  

In 2001, the U.S. Fish and Wildlife Service (USFWS) listed the dusky gopher frog as an endangered species.  Among the areas designated as critical habitat was a 1,544-acre site in Louisiana where the frog species had last been seen in 1965. While that acreage was largely comprised of closed-canopy timber, it contained five ephemeral ponds and the USFWS believed that the tract met the statutory definition of “unoccupied critical habitat” because it could be a prime breeding ground for the frog.

The plaintiff owned part of the 1,544-acre tract and leased the balance from a group of landowners that had plans for development of the portion of the tract that they owned. Those development improvements could amount to over $30 million (in timber farming and development) if the USFWS barred all development on the tract. But, according the USFWS, that potential lost economic value would not be “disproportionate” to the conservation benefits of the designation. Consequently, the USFWS decided to not exclude the 1,544-acre tract from the frog’s critical habitat.

The plaintiff and the landowners sued to vacate the designation on the basis that the tract couldn’t be designated as critical habitat because it hadn’t been habitat for the frog since 1965 and couldn’t be habitat without significant modification. The plaintiff also challenged the USFWS decision baes on the cost/benefit calculation.  However, the trial court upheld the designation on the basis that the tract fit the definition of “unoccupied critical habitat” essential for the frog’s conservation.

On appeal, the U.S. Court of Appeals for the Fifth Circuit affirmed on the basis that that definition of “critical habitat” did not require “habitability.”  The appellate court also determined that the decision of the USFWS was not subject to judicial review. On further review, the Supreme Court unanimously reversed 8-0 (Justice Kavanaugh did not participate).  The Court pointed out that to be “critical habitat,” the designated area must first be “habitat.” Indeed, the Court pointed out that once a species is designated as endangered, the Secretary must designate the habitat of the species which is then considered to be critical habitat. 16 U.S.C. §1533(a)(3)(A)(i). That also applied in the context of unoccupied critical habitat that is determined to be essential for conservation of the species – the area must be “habitat.”

Because the appellate court did not interpret the term “habitat” (the appellate court simply concluded that “critical habitat” was not limited to areas that were “habitat”), the Supreme Court vacated the appellate court’s opinion and remanded on this issue. The Supreme Court also disagreed with the appellate court’s holding that the determination of the USFWS to not exclude the tract as critical habitat was not subject to judicial review. The Supreme Court noted that the plaintiff’s claim involving the alleged improper weighing of costs and benefits of the designation as critical habitat was the type of claim that the federal court’s routinely review when determining whether to set aside an agency decision as an abuse of discretion. Thus, the Supreme Court also vacated this part of the appellate court’s decision and remanded on the issue. 

The Court’s decision is a big “win” for agriculture and private landowners in general. 


We will continue the journey through the remainder of the “Top Ten of 2018” next week.  Six more developments to go.

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