Top Ten Agricultural Law and Tax Developments of 2019 (Numbers Six and Five)

Overview

Today I continue the survey of the top ag law and tax developments of 2019.  Up for commentary today are the sixth and fifth most important developments.  Both of them deal with the federal government’s regulation of water and its impact on farming and ranching operations 

The sixth and fifth most important developments in ag law and tax in 2019 – they are the topics of today’s blog post.

6. SCOTUS Rules on Administrative Agency Deference

A significant amount of governmental regulation of agricultural activities is conducted by and through administrative agencies that promulgate regulations and make decisions.  The rules for and scope of regulations is determined by unelected bureaucrats and often has the force of law.  In addition, much of administrative law involves the administrative agency that developed the regulation at issue serving as judge and jury over disputed matters involving those same regulations.  This raises fundamental questions of fairness. 

In theory, governmental administrative agencies cannot exceed the authority provided by the legislative body.  Ultimately, the courts serve as the check on the exercise of authority.  But, how?  Under what standard do the courts review administrative agency decisions?  It’s an issue that was addressed by the U.S. Supreme Court (SCOTUS) in 2019, and it didn’t turn out the way that many in agriculture had hoped.

Courts generally consider only whether the administrative agency acted rationally and within its statutory authority.  In general, when dealing with administrative appeals from a federal agency such as the USDA, the court generally defers to the agency’s interpretation of its regulations as contained in the agency’s interpretive manuals.  In 1997, the U.S. Supreme Court reiterated the principle of agency deference.  Auer v. Robbins, 519 U.S. 452 (1997).  This so-called “Auer deference” involves a court deferring (or give “controlling weight”) to agency interpretations of its own ambiguous regulations.  Another type of deference, known as “Chevron deference” involves a court deferring to an agency interpretation of ambiguous statutes that the agency administers.  Chevron U.S.A., Inc. v. Natural Resources Defense Council, Inc., 467 U.S. 837 (1984). However, the Court, in 2013 criticized the Court’s 1997 decision and suggested that it might be time to reconsider principles of agency deference.  Decker v. Northwest Environmental Defense Center, 133 S. Ct. 1326 (2013).  

In 2019, the U.S. Supreme Court again addressed the issue of deference in Kisor v. Wilkie, 139 S. Ct. (2019).  The facts of the case didn’t involve agriculture.  That’s not the important part.  What is important is that the Court again reaffirmed (5-4, thanks to Chief Justice Roberts) Auer deference.  However, the Court did appear to place some limitations on Auer deference for future cases.  I say “appear” because the Court created a new multi-part test for review of agency action that could prove difficult for lower courts to apply and relatively easy for administrative agencies to skirt.  According to the Court, a court that reviews agency action is to review the regulatory language at issue to determine whether the regulation is ambiguous.  If it is, the court is to then apply Auer deference in determining whether the agency reached a reasonable conclusion resulting from the agency’s careful consideration and expertise after giving affected parties reasonable notice of the agency’s interpretation.  From agriculture’s perspective, it was hoped that the Court would jettison Auer deference.  That would have been the approach of Justice Gorsuch who would have eliminated the binding agency deference of Auer.  

So, the battle between agriculture and administrative agencies will continue on numerous fronts, and the arguments over the reasonableness of agency interpretations will continue with the courts largely deferring to agency determinations.  While there might be a dent in Auer deference, it still is a very functional defense to agency action.

5. Waters of the United States (WOTUS) Definition

The final WOTUS rule was published on October 22, 2019.  84 Fed. Reg. 56626 (Oct. 22, 2019).  The rule became effective on December 23, 2019, and repeals the Obama Administration’s 2015 WOTUS rule that had established a broader set of standards for determining federal jurisdiction over waters subject to regulation under the CWA.  The 2019 final rule restores the regulatory definitions and guidance that were used to make jurisdictional determinations before the implementation of the 2015 WOTUS rule.  The 2015 rule was heavily litigated and resulted in various court decisions that enjoined the rule in 28 states and kept it in force the other states.  The repeal of the 2015 WOTUS rule restores the regulatory definition of a WOTUS that was in force before the effective date of the 2015 rule.  That regulatory definition was based on Justice Kennedy’s concurring opinion in Rapanos v. United States, 547 U.S. 715 (2006).  Thus, jurisdictional determinations will be made on a case-by-case basis using guidance developed following the Rapanos decision, as they were before the 2015 WOTUS rule.

The Environmental Protection Agency (EPA) and the U.S. Army Corps of Engineers (COE) listed four reasons for their action in repealing the 2015 rule: 1) the 2015 rule misinterpreted and misapplied the “significant nexus” standard developed by Justice Kennedy’s concurring, and controlling, opinion in Rapanos v. United States, 547 U.S. 715 (2006), despite identifying that standard as its touchstone. This error expanded federal jurisdiction beyond what Congress intended; 2) the 2015 rule encroached State authority, violating the Clean Water Act’s express policy to “recognize, preserve, and protect the primary responsibilities and rights of States to prevent, reduce, and eliminate pollution” and “to plan the develop and use … of land and water resources.” 33 U.S.C. 1251(b); 3) the 2015 rule raised serious constitutional questions in the absence of an express Congressional directive to push the envelope of the federal government’s regulatory power; and 4) the 2015 rule had been remanded by the Southern District of Texas for procedural deficiencies under the Administrative Procedure Act.

The repeal of the 2015 rule establishes a path to the development of a new and less stringent jurisdictional rule. Indeed, on December 11, 2018, the EPA and the COE proposed a new WOTUS definition.  That new definition was published in the Federal Register on Feb. 14, 2019.  84 Fed. Reg. 4154 (Feb. 14, 2019).  The proposed definition was subject to a 60-day public comment period that closed on April 15, 2019.  The publication of the new definition was in line with President Trump’s Executive Order of February 28, 2017, that the EPA and the Corps clarify the scope of waters that are federally regulated under the Clean Water Act (CWA). 

Here’s a synopsis of the 2019 proposed rule:

• Groundwater that drains through a farm field tile system is not a point source pollutant subject to federal control under the CWA’s National Pollution Discharge Elimination System (NPDES).  Also excluded from the WOTUS definition are ephemeral streams (those only temporarily containing water) and diffuse surface runoff that doesn’t enter a WOTUS at a particular discharge point. 
• Ditches are excluded from the definition of a WOTUS unless the ditch is connected to a tributary of a WOTUS. A tributary is defined as “…a river, stream or similar naturally occurring surface water channel that contributes ‘perennial or intermittent’ flow to a traditional navigable water or territorial sea in a typical year…either directly or indirectly through other jurisdictional waters such as tributaries, impoundments, and adjacent wetlands…”.  Dry channels are not tributaries.     
• Prior converted (PC) wetland is also not a WOTUS. A prior converted wetland is a wetland that was totally drained before December 23, 1985.  However, farmed wetland can still be subject to regulation by the USDA.  A “farmed wetland” is a wetland that was manipulated before December 23, 1985, but still exhibits wetland characteristics. Drains affecting these areas can be maintained, but the scope and effect of the original drainage system cannot be exceeded.  See, e.g., Barthel v. United States Department of Agriculture, 181 F.3d 934 (8th Cir. 1999).   
• Areas that are artificially irrigated are not a WOTUS. This is an important exception for rice and cranberry farmers.  Likewise, excluded are artificial lakes and ponds (a waterbody that doesn’t have a natural outflow) that are constructed in upland areas.  This would include such structures as farm ponds, stock watering ponds, water storage reservoirs, settling basins and log cleaning ponds.  If there is no perennial or intermittent flow being contributed by the lake or pond, then the lake or pond is not jurisdictional (at least at the federal level). 
• Other water-filled depressions (such as those created by mining or construction activity when fill, sand or gravel is excavated) are excluded from the definition of a WOTUS if they are in uplands. They are not excluded if they are created in a wetland area to begin with.
• “[A] mere hydrological connection from a non-navigable, isolated, intrastate lake or pond…may be insufficient to establish jurisdiction under the proposed rule.” “…[E]cological connections between physically separated lakes and ponds and otherwise jurisdictional waters” are not under federal control.  

Conclusion

In the next post, I move on to commenting on the fourth and third most important developments from 2019.  Stay tuned.