Thursday, November 14, 2019

Groundwater Discharges of Pollutants and the Supreme Court

Overview

In Tuesday’s post, https://lawprofessors.typepad.com/agriculturallaw/2019/11/does-a-pollutant-discharge-from-groundwater-into-a-wotus-require-a-federal-permit.html, I discussed the three U.S. Circuit Court of Appeal decisions from 2018 involving groundwater discharges of pollutants and the Clean Water Act (CWA).  The courts reached opposite conclusions on the issue of whether a CWA permit is required when pollutants originate from a point source but are conveyed to navigable waters by a nonpoint source, such as groundwater.  Last week the U.S. Supreme Court heard oral arguments in the one case of the three decisions mentioned above from 2018. 

The Court’s decision will be of monumental importance to agriculture.  In today’s post, I take a look at last week’s oral argument and explain why agriculture should care.

Framing the Issue

In Tuesday’s post, I laid out the basic requirements of the discharge permit requirements of the CWA.  To restate, the CWA requires a National Pollutant Discharge Elimination System (NPDES) permit for the discharge of pollutants into the navigable waters of the United States (WOTUS) “from” a point source.  The CWA (and the underlying regulations) defines a “point source” as a “discernable, confined, and discrete conveyance[s].”  Discharges not fitting within that definition are nonpoint source discharges and are primarily left up to the states to regulate.  The CWA also states that a “navigable” water is contained in a WOTUS, but groundwater is not. 

In the case presently before the Supreme Court, Hawaii Wildlife Fund v. County of Maui, 881 F.3d 754 (9th Cir. 2018), pet. for cert. granted sub. nom., County of Maui v. Hawaii Wildlife Fund, 139 S. Ct. 1164 (2019), treated wastewater from injection wells ultimately commingled with groundwater and dispersed in a manner that caused at least some of it to flow into the Pacific Ocean in a dispersed manner with no identifiable discharge point.  This had been known to occur since at least 1973 and no federal permit had ever been required.  An environmental group sued, and the trial court granted summary judgment to the group, finding that the indirect discharge of a pollutant into the ocean through a “groundwater conduit” constituted a point source of pollution, and that the CWA classifies groundwater as a “navigable water.”  The U.S. Court of Appeals for the Ninth Circuit affirmed.  The U.S. Supreme Court agreed to hear the case to clear up conflicting opinions on the issue by the Circuit Courts. 

What Does “From” Mean?

Boiled down to its essence, the case turns on the meaning of “from.”  As noted above, an NPDES permit is required for point source pollutants – those that originate “from” a point source that are discharged into a navigable water.  But what if the pollutant originates from a point source, travels through groundwater, and then later reaches a WOTUS?  Does the permit requirement turn on a direct discharge into a WOTUS, or simply a discharge that originated at a point source that ultimately ends up in a WOTUS?  Clearly, the wells at issue in the case are point sources – on that point all agree.  But, what about discharges from the wells that aren’t directly into a WOTUS?  Are indirect discharges into a WOTUS via groundwater (which is otherwise exempt from the NPDES) subject to the permit requirement?

At oral argument last week, the federal Environmental Protection Agency (EPA) took the position that discharges into groundwater are excluded from the NPDES permit requirement. The defendant county also pointed out that the CWA distinguishes point source and nonpoint source pollution, and that including indirect discharges into a WOTUS via groundwater would eliminate that distinction and expose countless businesses (and, I would add, farmers) to fines of $50,000 per day based on an “after-the-fact” traceability analysis (i.e., whether the pollutant can be traced from a navigable water back to the point source).  Justice Breyer along with Justice Kagan and Chief Justice Roberts seemed to reject the county’s rationale.  But Justice Alito posited an example of a homeowner with a septic tank whose contents ended up in discharging into a WOTUS.  Justices Breyer, Kavanaugh, Gorsuch and Chief Justice Roberts joined Justice Alito in expressing concern about the potential impact on such a homeowner.  They seemed to reject the environmental group’s traceability test and/or proximate cause tests.  Justice Breyer pointed out that “virtually every little drop of rain that falls finds its way to the sea” and that scientists are “geniuses” who “can trace all kinds of things.”  Justice Kavanaugh expressed concern that if the position of the environmental group were adopted that the CWA’s regulatory balance between the federal government and the various states would be severely (if not entirely) tilted in the federal government’s favor. 

Implications for Agriculture

The case is very important to agriculture because of the ways that a pollutant can be discharged from an initial point and ultimately reach a WOTUS.  For example, the application of manure or commercial fertilizer to a farm field either via surface application or via injection could result in eventual runoff of excess via the surface or groundwater into a WOTUS.  No farmer can guarantee that 100 percent of a manure or fertilizer application is used by the crop to which it is applied and that there are no traces of the unused application remaining in the soil.  Likewise, while organic matter decays and returns to the soil, it contains nutrients that can be conveyed via stormwater into surface water.  The CWA recognizes this and contains an NPDES exemption for agricultural stormwater discharges. But, if the Supreme Court decides in favor of the environmental group, the exemption would be removed, subjecting farmers (and others) to onerous CWA penalties unless a discharge permit were obtained - at a cost estimated to exceed $250,000 (not to mention time delays).

What about farm field tile drainage systems?  Seemingly, such systems would make it easier for “pollutants” to enter a WOTUS.  Such drainage systems are prevalent in the Midwest and other places, including California’s Central Valley.  Should the law discourage agricultural drainage activities?  Thus, a ruling upholding the environmental group’s position would dramatically change agricultural production.  In addition, while large operations would be better positioned to absorb the increased cost of production activities, many mid and small-sized operations would not be able to adjust based simply on the economics involved. 

Conclusion

What the case boils down to is whether the addition of a pollutant to groundwater that eventually reaches a WOTUS requires an NPDES permit.  If so, an NPDES permit would be required whenever any type of seepage to groundwater might occur that could reach a WOTUS.  That result is virtually always present with common agricultural practices, and an NPDES permit requirement for common agricultural husbandry practices would be most disruptive to food production in the United States.  There is a reason that the Congress left the regulation of nonpoint source pollution up to the states rather than create a blanket rule requiring an NPDES permit in practically all situations.  There is also a reason that Congress created an exemption for agricultural stormwater.  Are those reasons legitimate?  Do public policy concerns now override them?

In addition, a ruling in favor of the environmentalist group would certainly raise the issue of how the regulatory bureaucracy would administer such a massive expansion of the NPDES.

To agriculture, the definition of “from” is suddenly very important.   Sometime next year, the “word peddlers” will tell us what it means.

November 14, 2019 in Environmental Law | Permalink | Comments (0)

Tuesday, November 12, 2019

Does a Pollutant Discharge From Groundwater Into a WOTUS Require a Federal Permit?

Overview

Under the Clean Water Act (CWA), a National Pollution Discharge Elimination System (NPDES) permit is required to discharge a “pollutant” from a point source into the “navigable waters of the United States” (WOTUS).  Clearly, a discharge directly into a WOTUS is covered.  But, is an NPDES permit necessary if the discharge is directly into groundwater which then finds its way to a WOTUS?  Are indirect discharges from groundwater into a WOTUS covered?   If so, does that mean that farmland drainage tile is subject to the CWA and an NPDES discharge permit is required?  The federal government has never formally taken that position, but if that’s the case it’s a huge issue for agriculture. 

Last week the U.S. Supreme Court heard arguments in a case involving these issues.  The Court’s decision will have very significant implications for agriculture. 

CWA Discharge Permit Basics

The CWA recognizes two sources of pollution. Point source pollution is pollution which comes from a clearly discernable discharge point, such as a pipe, a ditch, or a concentrated animal feeding operation.  Under the CWA, point source pollution is the concern of the federal government.  Nonpoint source pollution, while not specifically defined under the CWA, is pollution that comes from a diffused point of discharge, such as fertilizer runoff from an open field.  Control of nonpoint source pollution is to be handled by the states through enforcement of state water quality standards and area-wide waste management plans.

Under 1977 amendments, tile drainage systems were exempted from CWA regulation via irrigation return flows.  See, e.g., Pacific Coast Federation of Fishermen’s Associations, et al. v. Glaser, et al., No. CIV S-2:11-2980-KJM-CKD, 2013 U.S. Dist. LEXIS 132240 (E.D. Cal. Sept. 16, 2013).  They aren’t considered to be point sources.  In addition, several courts have held that the NPDES system only applies to discharges of pollutants into surface water.  These courts have held that discharges of pollutants into groundwater are not subject to the NPDES permit

requirement even if the groundwater is hydrologically connected to surface water.  See, e.g., Umatilla Water Quality Protective Association v. Smith Frozen Foods, 962 F. Supp. 1312 (D. Ore. 1997); United States v. ConAgra, Inc., No. CV 96-0134-S-LMB, 1997 U.S. Dist. LEXIS 21401 (D. Idaho Dec. 31, 1997).  Likewise, in another case, the court determined that neither the CWA nor the EPA covered groundwater solely on the basis of a hydrological connection with surface water.  Village of Oconomowoc Lake v. Dayton Hudson Corporation, 24 F.3d 962 (7th Cir. 1994), cert. denied, 513 U.S. 930 (1994).  See also Rice v. Harken Exploration Co., 250 F.3d 264 (5th Cir. 2001); Cape Fear River Watch v. Duke Energy Progress, Inc., 25 F. Supp. 3d 798 (E.D. N.C. 2014).

But, other courts have taken a different view, finding that the CWA covers pollution discharges irrespective of whether the discharge is directly into a WOTUS or indirectly via groundwater with some sort of hydrological connection to a WOTUS.   See, e.g., Idaho Rural Council v. Bosma, 143 F. Supp. 2d 1169 (D. Idaho 2001); Northern California River Watch v. Mercer Fraser Co., No. 04-4620 SC, 2005 U.S. Dist. LEXIS 42997 (N.D. Cal. Sept. 1, 2005); United States v. Banks, 115 F.3d 916 (11th Cir. 1997), cert. denied, 522 U.S. 1075 (1998); Mutual Life Insurance Co. of New York v. Mobil Corp., No. 96-CV-1781 (RSP/DNH), 1998 U.S. Dist. LEXIS 4513 (N.D. N.Y. Mar. 31, 1998).

2018 Cases

Ninth Circuit case.  Three different U.S. Circuit Courts of Appeal decided cases on the discharge from groundwater issue.  In the first case, Hawai’i Wildlife Fund v. County of Maui, 881 F.3d 754 (9th Cir. 2018), the defendant owned and operated four wells at the Lahaina Wastewater Reclamation Facility (LWRF), which is the principal municipal wastewater treatment plant for a city. Although constructed initially to serve as a backup disposal method for water reclamation, the wells became the defendant’s primary means of effluent disposal into groundwater and, ultimately, the Pacific Ocean. The LWRF received approximately 4 million gallons of sewage per day from a collection system serving approximately 40,000 people. That sewage is treated at LWRF and then either sold to customers for irrigation purposes or injected into the wells for disposal.

The defendant injected approximately 3 to 5 million gallons of treated wastewater per day into the groundwater via its wells.  The defendant conceded, and its expert confirmed that wastewater injected into wells 1 and 2 enters the Pacific Ocean. In addition, in June 2013 the EPA, the Hawaii Department of Health, the U.S. Army Engineer Research and Development Center, and researchers from the University of Hawaii conducted a study on wells 2, 3 and 4. The study involved placing tracer dye into Wells 2, 3, and 4, and monitoring the submarine seeps off Kahekili Beach to see if and when the dye would appear in the Pacific Ocean. This study, known as the “Tracer Dye Study,” found that 64 percent of the treated wastewater from wells 3 and 4 discharged into the ocean. The plaintiff sued, claiming that the defendant was in violation of the Clean Water Act (CWA) by discharging pollutants into navigable waters of the United States without a CWA National Pollution Discharge Elimination System (NPDES) permit. The trial court agreed, holding that an NPDES permit was required for effluent discharges into navigable waters via groundwater.

On appeal, the appellate court held that the wells were point sources that could be regulated through CWA permits despite the defendant’s claim that an NPDES permit was not required because the wells discharged only indirectly into the Pacific Ocean via groundwater. Specifically, the appellate court held that “a point source discharge to groundwater of “more than [a] de minimis” amount of pollutants that is “fairly traceable from the point source . . . such that the discharge is the functional equivalent of a discharge into a navigable water” is regulated under the CWA.” The appellate court reached this conclusion by citing cases from other jurisdictions that determined that an indirect discharge from a point source into a navigable water requires an NPDES discharge permit. The defendant also claimed that its effluent injections are not discharges into navigable waters, but rather were disposals of pollutants into wells, and that the CWA categorically excludes well disposals from the permitting requirements. However, the appellate court held that the CWA does not categorically exempt all well disposals from the NPDES requirements because doing so would undermine the integrity of the CWA’s provisions. Lastly, the defendant claimed that it did not have fair notice because the state agency tasked with administering the NPDES permit program maintained that an NPDES permit was unnecessary for the wells. However, the appellate court held that the agency was actually still in the process of determining if an NPDES permit was applicable. Thus, the appellate court found the lack of solidification of the agency’s position on the issue did not affirmatively demonstrate that it believed the permit was unnecessary as the defendant claimed. Furthermore, the court held that a reasonable person would have understood the CWA as prohibiting the discharges, thus the defendant’s due process rights were not violated. 

EPA seeks input.  After the Ninth Circuit issued its opinion, the EPA, on February 20, 2018, requested comment on whether pollutant discharges from point sources that reach jurisdictional surface waters via groundwater may be subject to Clean Water Act (“CWA”) regulation. Specifically, the EPA sought comment on whether the EPA should consider clarification or revision of previous EPA statements regarding the Agency’s mandate to regulate discharges to surface waters via groundwater under the CWA.  Some courts have taken the view that Congress intended the CWA to regulate the release of pollutants that reach “waters of the United States” regardless of whether those pollutants were first discharged into groundwater. However, other courts, have taken the view that neither the CWA nor the EPA’s definition of waters of the United States asserts authority over groundwater based solely on a hydrological connection with surface waters. EPA has not stated that CWA permits are required for pollutant discharges to groundwater in all cases. Rather, EPA’s position has been that pollutants discharged from point sources that reach jurisdictional surface waters via groundwater or other subsurface flow that has a direct hydrologic connection to the jurisdictional water may be subject to CWA permitting requirements. As part of its request, the EPA sought comment by May 21, 2018, on whether it should review and potentially revise its previous positions. In particular, the EPA sought comment on whether it is consistent with the CWA to require a CWA permit for indirect discharges into jurisdictional surface waters via groundwater. The EPA also sought comment on whether some or all of such discharges are addressed adequately through other federal authorities, existing state statutory or regulatory programs or through other existing federal regulations and permit programs.

Fourth Circuit case.  Approximately two months after the Ninth Circuit issued its opinion, the Fourth Circuit issued its opinion in Upstate Forever, et al. v. Kinder Morgan Energy Partners, LP, et al., 887 F.3d 637 (4th Cir. 2018)The plaintiffs, a consortium of environmental and conservation groups, brought a citizen suit under the CWA claiming that the defendant violated the CWA by discharging “pollutants” into the navigable waters of the United States without a required discharge permit via an underground ruptured gasoline pipeline owned by the defendant’s subsidiary. The plaintiff claimed that a discharge permit was needed because the CWA defines “point source pollutant” (which requires a discharge permit) as “any discernible, confined and discrete conveyance, included but not limited to any…well…from which pollutants are or may be discharged.”  The trial court dismissed the plaintiffs’ claim for lack of standing.

On appeal, the appellate court determined that the trial court did have subject matter jurisdiction under the CWA’s citizen suit provision because the provision covered the discharge of “pollutants that derive from a ‘point source’ and continue to be ‘added’ to navigable waters.” Thus, even though the pipeline was no longer releasing gasoline, it continues to be passing through the earth via groundwater and continued to be discharged into regulable surface waters. This finding was contrary to the trial court’s determination that the court lacked jurisdiction because the pipeline had been repaired and because the pollutants had first passed through groundwater. As such, the appellate court determined that, in accord with the Second and Ninth Circuits, that a pollutant can first move through groundwater before reaching navigable waters and still constitute a “discharge of a pollutant” under the CWA that requires a federal discharge permit. The discharge need not be channeled by a point source until reaching navigable waters that are subject to the CWA.  It is sufficient, the appellate court reasoned, that the discharge of pollutants from a point source through groundwater have a direct hydrological connection to navigable waters of the United States. 

The appellate court did, however, point out that a discharge into groundwater does not always mean that a CWA discharge permit is required. A permit in such situations is only required if there is a direct hydrological connection between groundwater and navigable waters. In the present case, however, the appellate court specifically noted that the pipeline rupture occurred within 1,000 feet of the navigable waters. The appellate court also noted that the defendant had not established any independent or contributing cause of pollution. 

Sixth Circuit Case

In the fall of 2018, the Sixth Circuit decided Tennessee Clean Water Network v. Tennessee Valley Authority, 905 F.3d 436 (6th Cir. 2018).  The case involved a utility that burned coal to produce energy.  As a part of that production process, coal ash is produced.  The coal ash is discharged into man-made ponds. The plaintiffs, environmental activist groups, claimed that the chemicals from the coal ash in the ponds leaked into surrounding groundwater where it was then carried to a nearby lake that was subject to regulation under the Clean Water Act (CWA). They claimed that the contamination of the lake without a discharge permit violated the CWA and the Resource Conservation and Recovery Act (RCRA).

The trial court had dismissed the RCRA claim but the appellate court reversed that determination and remanded the case on that issue. On the CWA claim, the trial court ruled as a matter of law that the CWA applies to discharges of pollutants from a point source through groundwater that is hydrologically connected to navigable waters where the connection is "direct, immediate, and can generally be traced." The trial court held that the defendant’s facility was a point source because it "channel[s] the flow of pollutants . . . by forming a discrete, unlined concentration of coal ash," and that the Complex is also a point source because it is "a series of discernible, confined, and discrete ponds that receive wastewater, treat that wastewater, and ultimately convey it to the Cumberland River." The trial court also determined that the defendant’s facility and the ponds were hydrologically connected to the Cumberland River by groundwater. As for the defendant’s facility, the court held that "[f]aced with an impoundment that has leaked in the past and no evidence of any reason that it would have stopped leaking, the Court has no choice but to conclude that the [defendant’s facility] has continued to and will continue to leak coal ash waste into the Cumberland River, through rainwater vertically penetrating the Site, groundwater laterally penetrating the Site, or both." The trial court determined that the physical properties of the terrain made the area “prone to the continued development of ever newer sinkholes or other karst features." Thus, based on the contaminants flowing from the ponds, the court found defendant to be in violation of the CWA. The trial court also determined that the leakage was in violation of the defendant “removed-substances” and “sanitary-sewer” overflow provisions.

The trial court ordered the defendant to "fully excavate" the coal ash in the ponds (13.8 million cubic yards in total) and relocate it to a lined facility. On further review, the appellate court reversed. The appellate court held that the CWA does not apply to point source pollution that reaches surface water by means of groundwater movement. The appellate court rejected the plaintiffs’ assertion that mere groundwater is equivalent to a discernable point source through which pollutants travel to a CWA-regulated body of water. The appellate court noted that, to constitute a “conveyance” of groundwater governed by the CWA, the conveyance must be discernible, confined and discrete. While groundwater may constitute a conveyance, the appellate court reasoned that it is neither discernible, confined nor discrete. Rather, the court noted that groundwater is a “diffuse medium” that “seeps in all directions, guided only by the general pull of gravity. Thus, it [groundwater] is neither confined nor discrete.” In addition, the appellate court noted that the CWA only regulates pollutants “…that are added to navigable waters from any point source.” In so holding, the court rejected the holdings of the Ninth and Fourth Circuits from earlier in 2018.

EPA interpretive statement.  After receiving over 50,000 comments, on April 15, 2019, the EPA issued an interpretive statement concluding that the releases of pollutants to groundwater are categorically excluded from the NPDES regardless of whether the groundwater is hydrologically connected to surface water.  The EPA reasoned that the Congress explicitly left regulation of groundwater discharges to the states and that the EPA had other statutory authorities through which to regulate groundwater other than the NPDES.  The EPA, in its statement, noted that its interpretation would apply in areas not within the jurisdiction of the U.S. Circuit Courts of Appeal for the Ninth and Fourth Circuits. 

Conclusion

Earlier this year, the U.S. Supreme Court agreed to hear the Ninth Circuit opinion.  Last week, the Court heard oral arguments in the case.  The specific question before the Court is whether the CWA requires a permit when pollutants originate from a point source but are conveyed to navigable waters by a nonpoint source, such as groundwater.  The EPA, in its April 15, 2019, interpretive statement stated that once the U.S. Supreme Court issues its opinion in the matter that the EPA may take further action, if necessary.

How the Supreme Court answers the question has critical implications for agriculture.  In Thursday’s post, I will review the oral argument and the implications for agriculture. 

November 12, 2019 in Environmental Law | Permalink | Comments (0)

Friday, October 11, 2019

Regulatory Takings – Pursuing a Remedy

Overview

The power to “take” private property for public use (or for a public purpose) without the owner's consent is an inherent power of the federal and state governments.  However, the United States Constitution limits the government's eminent domain power by requiring federal and state governments to pay for what is “taken.”  The Fifth Amendment states in part “...nor shall private property be taken for public use without just compensation.” 

Whether a taking has occurred is not an issue when the government physically takes the property, with the only issue being whether the taking is compensable and the amount of compensation due to the landowner.  However, for non-physical (regulatory) takings, the issue is murkier.  At what point does government regulation of private property amount to a compensable taking?  In a previous post I addressed U.S. Supreme Court guidance on how to determine the property that the landowner claims has been taken. 

If the taking is by a state or local government, must the landowner “exhaust” state court remedies before seeking compensation for a regulatory taking?  If so, it could result in a landowner having no real access to the federal court system on a constitutional taking claim.  It’s an issue that the U.S. Supreme Court addressed late in its last term this past June.  It’s also the topic of today’s post – pursuing a “takings” remedy in federal court for a state/local-level regulatory taking

Regulatory (Non-Physical) Takings

A non-physical taking may involve the governmental condemnation of air space rights, water rights, subjacent or lateral support rights, or the regulation of property use through environmental restrictions.  How is the existence of a regulatory taking determined?  There are several approaches that the Supreme Court has utilized.

Multi-factor balancing test.  In a key case decided in 1978, the U.S. Supreme Court set forth a multi-factored balancing test for determining when governmental regulation of private property effects a taking requiring compensation.  In Penn Central Transportation Co. et al. v. New York City, 438 U.S. 104 (1978), the Court held that a landowner cannot establish a “taking” simply by being denied the ability to exploit a property interest believed to be available for development.  Instead, the Court ruled that in deciding whether particular governmental action effects a taking, the character, nature and extent of the interference with property rights as a whole are the proper focus rather than discrete segments of the owner’s property rights.  In 2005, the Court confirmed the multi-factor test and noted that the touchstone for deciding when a regulation is a taking is whether the restriction on property usage is functionally equivalent to a physical taking of the property.  Lingle, et al. v. Chevron U.S.A., Inc., 544 U.S. 528 (2005).  

Total regulatory taking.  In Lucas v. South Carolina Coastal Council, 505 U.S. 1003 (1992), the landowner purchased two residential lots with an intent to build single-family homes.  Two years later, the state legislature passed a law prohibiting the erection of any permanent habitable structures on the Lucas property.  The law's purpose was to prevent beachfront erosion and to protect the property as a storm barrier, a plant and wildlife habitat, a tourist attraction, and a “natural health environment” which aided the physical and mental well-being of South Carolina's citizens.  The law effectively rendered the Lucas property valueless.  Lucas sued the Coastal Council claiming that, although the act may be a valid exercise of the state's police power, it deprived him of the use of his property and thus, resulted in a taking without just compensation.  The Coastal Council argued that the state had the authority to prevent harmful uses of land without having to compensate the owner for the restriction.

The Supreme Court ruled for Lucas and opined that the state's interest in the regulation was irrelevant since the trial court determined that Lucas was deprived of any economically viable alternative use of his land.  The Lucas case has two important implications for environmental regulation of agricultural activities.  First, the Lucas court focused solely on the economic viability of the land and made no recognition of potential noneconomic objectives of land ownership.  However, in the agricultural sector land ownership is typically associated with many noneconomic objectives and serves important sociological and psychological functions.  Under the Lucas approach, these noneconomic objectives are not recognized.  Second, under the Lucas rationale, environmental regulations do not invoke automatic compensation unless the regulations deprive the property owner of all beneficial use.

Under the Lucas approach, an important legal issue is whether compensation is required when the landowner has economic use remaining on other portions of the property that are not subject to regulation.

Unconstitutional conditions.  In Nollan v. California Coastal Commission,483 U.S. 825 (1987), the plaintiff owned a small, dilapidated beach house and wanted to tear it down and replace it with a larger home.  However, the defendant was concerned about preserving the public's viewing access over the plaintiff's land from the public highway to the waterfront.  Rather than preventing the construction outright, the defendant conditioned the plaintiff's right to build on the land upon the plaintiff giving the defendant a permanent, lateral beachfront easement over the plaintiff's land for the benefit of the public.  Thus, the issue was whether the state could force the plaintiffs to choose between their construction permit and their lateral easement.  The Court held that this particular bargain was impermissible because the condition imposed (surrender of the easement) lacked a “nexus” with, or was unrelated to the legitimate interest used by the state to justify its actions - preserving the view.  The Court later ruled similarly in Dolan v. Tigard, 512 U.S. 374 (1994).  These cases hold that the government may not require a person to give up the constitutional right to receive just compensation when property is taken for a public use in exchange for a discretionary benefit that has little or no relationship to the property. The rule of the cases does not apply to situations involving impact fees and other permit conditions that do not involve physical invasions, but it would apply to monetary exactions where none of the plaintiff’s property is actually taken.  See, e.g., Koontz v. St. Johns River Water Management District, 133 S. Ct. 2586 (2013).

State/Local Takings – Seeking a Remedy

For a landowner that has sustained a state/local regulatory (or physical) taking, can compensation be sought initially in federal court or must legal procedures be first pursued in state court with federal courts only available if compensation is denied at the state level?  The U.S. Supreme Court answered this question in 1985.  In Williamson Regional Planning Commission v. Hamilton Bank of Johnson City, 473 U.S. 172 (1985), the Court held that if a state provides an adequate procedure for seeking just compensation, there is no Fifth Amendment violation until the landowner has used the state procedure and has been denied just compensation.  However, 28 U.S.C. §1738, would then be applied with the resulting effect that the failure to receive compensation at the state level generally meant that there was no recourse in the federal courts because of the preclusive effect of the landowner having already litigated the same issue(s) in the state courts.  See, e.g., San Remo Hotel L.P., v. City and County of San Francisco, 545 U.S. 323 (2005).  This “catch-22” was what the Court examined earlier this year.

The 2019 Case

In Knick v. Township of Scott, 139 S. Ct. 2162 (2019), the plaintiff owned a 90-acre farm in Pennsylvania on which she grazed horse and other animals.  The farm includes a small graveyard where ancestors of the plaintiff’s neighbors were buried.  Such “backyard burials” are permissible in Pennsylvania.  In late 2012, the defendant passed an ordinance requiring that “[a]ll cemeteries…be kept open and accessible to the general public during daylight hours.”  The ordinance defined a “cemetery” as “[a] place or area of ground, whether contained on private or public property which has been set apart for or otherwise utilized as a burial place for deceased human beings.”  In 2013, the defendant notified the plaintiff of her violation of the ordinance.  The plaintiff sued in state court for declaratory and injunctive relief on the basis that the ordinance amounted to a taking of her property, but she did not seek compensation via an inverse condemnation action.

While the case was pending, the defendant agreed to not enforce the ordinance.  As a result, the trial court refused to rule on the plaintiff’s action.  Without any ongoing enforcement of the ordinance, the plaintiff couldn’t show irreparable harm.  Without irreparable harm, the court noted, the plaintiff couldn’t establish what was necessary for the equitable relief she was seeking.  Frustrated at the result in state court, the plaintiff filed a takings claim in federal court.  However, the federal trial court dismissed the case because she hadn’t sought compensation at the state level.  Knick v. Scott Township, No. 3:14-CV-2223st (M.D. Pa. Oct. 29, 2015).  The appellate court affirmed, citing the Williamson case.  Knick v. Township of Scott, 862 F.3d 310 (3d Cir. 2017). 

In a 5-4 decision, Chief Justice Roberts (joined by Justices Alito, Gorsuch, Kavanaugh and Thomas), writing for the majority, reversed.  He pointed out that there is a distinction between the substance of a right and the remedy for the violation of that right.  It’s the takings clause of the Fifth Amendment that establishes that the government can only take (either physically or via regulation) private property by paying for it. The government’s infringement on private property is what triggers possible compensation.  The Constitutional violation has occurred and a state court decision that makes the landowner financially whole simply remedies that violation.  It doesn’t redefine the property right.  Thus, the majority opinion reasoned, laws confer legal rights and when those rights are violated there must be legal recourse.  See, e.g., Marbury v. Madison, 5 U.S. 137 (1803).  As the majority noted, “a government violates the Takings Clause when it takes property without compensation, and…a property owner may bring a Fifth Amendment claim [in federal court]… at that time.”

Conclusion

The Court’s decision is a significant win for farmer’s, ranchers, and other rural landowners that are impacted by state and local regulations impacting land use.  A Fifth Amendment right to compensation accrues at the time the taking occurs.  It’s also useful to note that the decision would not have come out as favorably without the presence of Justices Gorsuch and Kavanaugh on the Court.  That’s a point that agricultural interests also note.   

 

October 11, 2019 in Environmental Law, Regulatory Law | Permalink | Comments (0)

Wednesday, October 9, 2019

Ag Law in the Courts

Overview 

Agricultural law issues in the courts are many.  On a daily basis, cases involving farmers, ranchers, rural landowners and agribusinesses are decided.  Periodically, on this blog I examine a few of the recent court decisions that are of particular importance and interest.  Today’s post is one such post.

Proving water drainage damage; migrating gas and the rule of capture; and suing for Clean Water Act (CWA)  – these are the topics of today’s post.

The Case of the Wayward Water

In Kellen v. Pottebaum, 928 N.W.2d 874 (Iowa Ct. App. 2019), the defendant installed a drain pipe that discharged water from the defendant’s land to the plaintiffs’ land. The plaintiff sued alleging that the pipe caused an unnatural flow of water which damaged the plaintiff’s farmland and sought damages and removal of the pipe. The defendant counterclaimed arguing that the plaintiff’s prior acts and/or inaction regarding the flow of the water caused damage to the defendant’s property. The trial court determined that neither party had established their claims and dismissed each claim with prejudice.

The appellate court affirmed.  As for the sufficiency of the evidence, the appellate court noted that the defendant owned the dominant estate and the plaintiff owned the servient estate. As such, if the plaintiff could prove that the installation of the pipe considerably increased the volume of water flowing onto the plaintiff’s land or substantially changed the drainage and actual damage resulted, the plaintiff would be entitled to relief. However, most of the evidence presented to the court was the observations of lay witnesses rather than measured water flow. Accordingly, the appellate court agreed with the trial court that the plaintiff did not prove by a preponderance of the evidence that installation of the pipe caused the increased water flow. The appellate court noted that a “reasonable fact finder” could attribute the additional water on the plaintiffs’ property to the increased rain fall during the years at issue. The appellate court also determined that the plaintiffs did not prove by preponderance of the evidence that installation of the pipe substantially changed the drainage. The water did not flow in a different direction on the plaintiff’s property. Rather, the defendant altered the flow of water across his property in a natural direction towards the plaintiff’s drainage, which is permissible under state (IA) law. Thus, the plaintiff did not prove harm by a preponderance of the evidence. The appellate court also concluded that the trial court did not abuse its discretion excluding some of the plaintiff’s evidence. 

Ownership of Migrated Gas

In Northern Natural Gas Co. v. ONEOK Field Servs. Co., LLC, No. 118,239, 2019 Kan. LEXIS 324 (Kan. Sup. Ct. Sept. 6, 2019), the plaintiff operated an underground gas storage facility, which was certified by the proper state and federal commissions. The defendants were producers with wells located two to six miles from the edge of the plaintiff’s certified storage area. Stored gas migrated to the defendants’ wells and the defendants captured and sold the gas as their own. The plaintiff sued for lost gas sales and the defendants moved for summary judgment on the grounds that the Kansas common law rule of capture allowed the gas extraction. The trial court granted the defendants’ motion. Two years later, the plaintiff received certification to expand the storage area into the areas with the defendants’ wells. Another dispute arose as to whether the defendants could capture the gas after the plaintiff’s storage area was expanded. The trial court held that the defendants could under the common law rule of capture.

On review, the Kansas Supreme Court reversed and remanded on the basis that the rule of capture did not apply. That rule, the Court noted, allows someone that is acting within their legal rights to capture oil and gas that has migrated from the owner’s property to use the migrated oil and gas for their own purposes. The rule reflects the application of new technology such as injection wells and applies to non-native gas injected into common pools for storage. However, the Court reasoned, the rule does not apply when a party (such as the plaintiff) is authorized to store gas and the storage is identifiable. The Court determined that state statutory law did not override this recognized exception to the application of the rule of capture. The Court remanded the case for a computation of damages for the lost gas. 

Jurisdiction Over CWA §404 Permit Violations – Who Can Sue?

A recent case involving a California farmer has raised some eyebrows.  In the case, the trial court allowed the U.S. Department of Justice (DOJ) to sue the farmer for an alleged CWA dredge and bill permit violation without a specific recommendation from the Environmental Protection Agency (EPA).  The farmer was alleged to have discharged “pollutants” into a “waters of the United States” (WOTUS) as a result of tractor tillage activities on his farmland containing or near to wetlands contiguous to a creek that flowed into a WOTUS.  Staff of the U.S. Army Corps of Engineers (COE) saw the tilled ground and investigated.  The COE staff then conferred with the EPA and then referred the matter to the U.S. Department of Justice (DOJ).  The DOJ sued (during the Obama Administration) for enforcement of a CWA §404 permit “by the authority of the Attorney General, and at the request of the Secretary of the Army acting through the United States Corps of Engineers.”  The DOJ alleged that the equipment "constituted a 'point source'" pollutant under the CWA and "resulted in the placement of dredged spoil, biological materials, rock, sand, cellar dirt or other earthen material constituting “pollutants” (within the meaning of 33 U.S.C. § 1362(6) into waters of the United States. The DOJ alleged that the defendant impacted water plants, changed the river bottom and/or replaced Waters of the United States with dry land, and "resulted in the 'discharge of any pollutant' within the meaning of 33 U.S.C. § 1311(a)." 

The defendant moved for summary judgment on the basis that the CWA authorizes only the EPA Administrator to file a CWA §404 enforcement action and that the court, therefore, lacked jurisdiction.  The court disagreed with the defendant on the basis that 28 U.S.C. §1345 conferred jurisdiction.  That statute states, “Except as otherwise provided by Act of Congress, the district courts shall have original jurisdiction of all civil actions, suits or proceedings commenced by the United States or by any agency or officer thereof expressly authorized to sue by Act of Congress.  The court rejected the defendant’s claim that 33 U.S.C. §1319(b) and 33 U.S.C. §1344(s)(3) authorized only the EPA to sue for violations of the CWA, thereby limiting the jurisdiction conferred by 28 U.S.C. §1345.  Those provisions provide that the EPA Secretary is the party vested with the authority to sue for alleged CWA violations.  The court determined that there is a “strong presumption” against implied repeal of federal statutes, especially those granting jurisdiction to federal courts.  In addition, the court determined that the defendant failed to show that the general grant of jurisdiction was irreconcilable with either of the statutes the defendant cited.  Accordingly, the court determined that the defendant could be sued by the U.S. Department of Justice upon the mere recommendation of the COE and without a specific recommendation from the EPA alleging a CWA violation, and in a situation where the CWA did not determine any CWA jurisdiction and only the COE did.  This finding was despite a 1979 Attorney General opinion No. 197 determining that the EPA and not the COE has the ultimate authority to construe what is a navigable WOTUS.

Ultimately, the parties negotiated a settlement. The settlement included $1,750,000 civil penalty. The land which the farmer’s acts occurred will be converted to a conservation reserve and a permanent easement will run with the land to bar any future disturbance.  The settlement also specified that the farmer would spend $3,550,000 "to purchase vernal pool establishment, re-establishment, or rehabilitation credits from one or more COE-approved mitigation banks that serve the [applicable] area . . . .".  The settlement also included other enforcement stipulations, including fines and the civil penalty for noncompliance.  No comments on the settlement were received during the public comment period, after which the settlement was submitted to the court for approval.  The court approved the settlement ad consent decree on the basis that it was fair, reasonable, properly negotiated and consistent with governing law.  The court also determined that the settlement satisfied the goals of the CWA in that it permanently protected the Conservation Reserve (which contained between 75 and 139 acres of WOTUS); fixed damage caused by unauthorized discharges; applied a long-term pre-clearance injunction; required off-site compensatory mitigation and recouped a significant civil penalty.  The case is United States v. Lapant, No. 2:16-CV-01498-KJM-DB, 2019 U.S. Dist. LEXIS 75309 (E.D. Cal. May 3, 2019)United States v. Lapant, No. 2:16-CV-01498-KJM-DB, 2019 U.S. Dist. LEXIS 93590 (E.D. Cal. Jun. 3, 2019).

Conclusion

The three cases summarized today further illustrate the various legal battles that involve farmers, ranchers and rural landowners.  They also illustrate the need to legal counsel that is well-versed in agricultural issues.  That’s what we are all about in the Rural Law Program at Washburn Law School – providing high-level training in agricultural legal and tax issues and then getting new graduates placed in rural areas to represent farmers and ranchers. 

October 9, 2019 in Environmental Law, Real Property, Water Law | Permalink | Comments (0)

Tuesday, September 17, 2019

Irrigation Return Flows and the Clean Water Act

Overview

The Clean Water Act (CWA) has often been in the agricultural news in recent years.  Most of that attention has focused on the Waters of the United States” (WOTUS) rule, including the recent regulatory redefinition of the rule.  But there’s another issue that’s been lurking in the background, and it involves farm field drainage.

Are return flows to a watercourse from agricultural drainage activities exempt from the CWA permit requirements?  It’s the topic of today’s post.

Background

With the enactment of the federal water pollution control amendments of 1972 (more commonly known as the CWA, the federal government adopted a very aggressive stance towards the problem of water pollution. 

The CWA essentially eliminates the discharge of any pollutants into the nation's waters without a permit. The CWA recognizes two sources of pollution. Point source pollution is pollution which comes from a clearly discernable discharge point, such as a pipe, a ditch, or a concentrated animal feeding operation. Point source pollution is the concern of the federal government.  Nonpoint source pollution, while not specifically defined under the CWA, is pollution that comes from a diffused point of discharge, such as fertilizer runoff from an open field. Control of nonpoint source pollution is to be handled by the states through enforcement of state water quality standards and area-wide waste management plans.

Importantly, in 1977, the Congress amended the CWA to exempt return flows from irrigated agriculture as a point source pollutant. Thus, irrigation return flows from agriculture are not considered point sources if those “...discharges [are] composed entirely of return flows from irrigated agriculture.”   See, e.g., 33 U.S.C. §1342(l)(1); 40 C.F.R. §122.3.  See also, Hiebenthal v. Meduri Farms, 242 F. Supp. 2d 885 (D. Or. 2002).  This statutory exemption was elaborated in a 1994 New York case, Concerned Area Residents for the Environment v. Southview Farm, 34 F.3d 114 (2d Cir. 1994). In that case, the court noted that when the Congress exempted discharges composed “entirely” of return flows from irrigated agriculture from the CWA discharge permit requirements, it did not intend to differentiate among return flows based on their content.  Rather, the court noted, the word “entirely” was intended to limit the exception to only those flows which do not contain additional discharges from activities unrelated to crop production. 

Current Case

In Pacific Coast Federation of Fishermen’s Associations v. Glaser, No. 17-17310, 2019 U.S. App. LEXIS 26938 (9th Cir. Sept. 6, 2019), the plaintiffs (various fishing activist groups) filed a CWA citizen suit action claiming that the defendant’s (U.S. Bureau of Reclamation) Grasslands Bypass Project in the San Joaquin Valley of California was discharging polluted water (water containing naturally-occurring selenium from soil) into a WOTUS via a subsurface tile system under farmland in California’s Central Valley without a CWA permit.  The plaintiffs directly challenged the exemption of tile drainage systems from CWA regulation via “return flows from irrigated water” on the basis that groundwater discharged from drainage tile systems is separate from any irrigation occurring on farms and is, therefore, not exempt.  After the lower court initially refused to grant the government’s motion to dismiss, it later did dismiss the case noting that the parties agreed that the only reason the project existed was to enable the growing of crops requiring irrigation, and that the drainage of contaminated water only occurred due to irrigated agriculture.  The lower court noted that the plaintiffs failed to plead sufficient facts to support a claim that some discharges were unrelated to agricultural crop production.  Later, the plaintiffs retooled their complaint to claim that not all of the irrigated water that was discharged through the tile systems came from crop production. Rather, the plaintiffs claimed that some of the discharges that flowed into groundwater were from former farmlands that now contained solar panels.  It was this “seepage” from the non-farmland that the plaintiffs claimed was discharged in the farm field tile system and caused the system to contain pollutants that didn’t come exclusively from agricultural crop irrigation.  The lower court found the tile system to be within the exemption for “return flows from irrigation,” noting that “entirely” meant “majority” because (in the court’s view) a literal interpretation of the amended statutory language would produce an “absurd result.”

The appellate court reversed.  The appellate court held that discharges that include irrigation return flows from activities “unrelated” to crop production are not exempt from the CWA permit requirement.  To the appellate court, “entirely” meant just that – “entirely.”  It didn’t mean “majority” as the lower court had determined. 

Conclusion

What’s the impact of the appellate court’s decision?  After all, shouldn’t the appellate court be praised for construing a statute in accordance with what the law actually says?  What was the concern of the lower court of a literal interpretation of the statute?  For starters, think of the burden of proof issue.  Does the appellate court’s decision mean that a plaintiff must prove that some discharges come from non-agricultural irrigation activities, or does it mean that upon an allegation that irrigation return flows are not “entirely” from agricultural crop production that the farmer must prove that they all are?  If the latter is correct, that is a next-to-impossible burden for a farmer.  Such things as runoff from public roadways and neighboring farm fields can and do often seep into a farmer’s tile drainage system. If that happens, at least in the Ninth Circuit (Alaska, Arizona, California, Hawaii, Idaho, Montana, Nevada, Oregon and Washington), a farmer’s discharges will require a CWA permit.  This is the “absurd result” that the lower court was trying to avoid by construing “entirely” as “majority.”  

The appellate court remanded the case to the lower court for further review based on the appellate court’s decision.  However, the point remains that the appellate court determined that the exception for return flows from agriculture only applies when all of the discharges involved comes from agricultural sources.  That’s why the case is important to any farmer that irrigates crops and should be paid attention to.

September 17, 2019 in Environmental Law | Permalink | Comments (0)

Thursday, September 5, 2019

Regulatory Changes to the Endangered Species Act

Overview

The Endangered Species Act (ESA) establishes a regulatory framework for the protection and recovery of endangered and threatened species of plants, fish and wildlife. 16 U.S.C. § 1531, et seq.  The ESA has the potential to restrict substantially agricultural activities because many of the protections provided for threatened and endangered species under the ESA extend to individual members of the species when they are on private land where many endangered species have some habitat.

In late July of 2018, the U.S. Fish and Wildlife Service (USFWS) and the National Marine Fisheries Service (NMFS) issued three proposed rules designed to modify certain aspects of the ESA. Public comment on the proposed rules was accepted until September 24, 2018.  On August 12, 2019, the agencies announced the finalization of the regulations.

The ESA regulatory changes and their relevance to agriculture – that’s the topic of today’s post.

Background

The regulatory modifications to the ESA stem from early 2017 when President Trump signed an executive order (Exec. Order 13777, “Enforcing the Regulatory Reform Agenda”) requiring federal agencies to revoke two regulations for every new rule issued.  The order also required federal agencies to control the costs of all new rules within their budget. In addition, the order barred federal agencies from imposing any new costs in finalizing or repealing a rule for the remainder of 2017 unless that cost were offset by the repeal of two existing regulations.  Exceptions were included for emergencies and national security.  Beginning in 2018, the order required the director of the White House Office of Management and Budget to give each agency a budget for how much it can increase regulatory costs or cut regulatory costs.  The order was touted as the “most significant administrative action in the world of regulatory reform since President Reagan created the Office of Information and Regulatory Affairs (OIRA) in 1981."

The ESA has long been considered critical to species protection, but it has also been one of the most contentious environmental laws largely because of its impact on the usage of private as well as public land.  The judicial and legal costs of enforcing the ESA are quite high, as both environmental and industry groups have historically brought litigation to protect their interests on account of the ESA. 

As for private land, about half of ESA listed species have at least 80 percent of their habitat on private lands.  This has given concern to landowners that the presence of a listed species on their land will result in land use restrictions, loss in value, and possible involvement in third-party lawsuits.  

Under the ESA, “fish and wildlife” species are defined as any member of the animal kingdom, including without limitation any mammal, fish, bird...amphibian, reptile, mollusk, crustacean, arthropod, or other invertebrate. 16 U.S.C. § 1532(8). “Plants” are defined as any member of the plant kingdom. 16 U.S.C. § 1532(14).  An “endangered species” is a species which is in danger of extinction throughout all or a significant part of its range other than a species determined by the USFWS to constitute a pest whose protection under the provisions of the Act would present an overwhelming and overriding risk to humans. 16 U.S.C. § 1532(6). A “threatened species” is a species which is likely to become endangered within the foreseeable future throughout all or a significant portion of its range. 16 U.S.C. § 1532(20).  The term “species” includes any subspecies of fish or wildlife or plants and any distinct population segment of any species of vertebrate fish or wildlife which interbreeds when mature. 16 U.S.C. § 1532(16).

The Secretary of the Interior (Secretary) determines when a species is to be listed as either threatened or endangered.  Presently, there are about 1,700 species listed under the ESA as either endangered or threatened.  The listing decision historically has been made on the basis of the best available scientific and commercial data without reference to possible economic or other impacts after the USFWS conducts a review of the status of the species. 16 U.S.C. § 1533(b)(1)(A); 50 C.F.R. 424.11. There is, however, no statutory threshold definition or quantification of the level of data necessary to support a listing decision. Indeed, the information supporting a listing decision need not be credible; only the “best available.”

The USFWS considers species for listing on its own initiative, but the ESA also provides a listing petition process for “interested persons” to force evaluation and listing of a species. Within 90 days of receiving a petition for listing, the USFWS must determine whether the petition presents substantial information to warrant listing of the species.  If the USFWS concludes that the petitioned action is warranted, it then conducts a review of the species' status and must determine within one year of the receipt of the petition whether to propose formally the species for listing. The Secretary's decision to list a species as endangered or threatened is based upon the presence of at least one of the following factors; (1) the present or threatened destruction, modification, or curtailment of a species' habitat or range; (2) the over-utilization for commercial, sporting, scientific or educational purposes; (3) disease or predation; (4) the inadequacy of existing regulatory mechanisms; or (5) other natural or manmade factors affecting a species' continued existence. The USFWS may decline to list a species upon publishing a written finding either that listing is unwarranted or that listing is warranted, but that the USFWS lacks the resources to proceed immediately with the proposal.  Under the ESA, all USFWS decisions to decline listing a species are subject to judicial review.

When a species is listed as endangered or threatened, the Secretary 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. However, critical habitat need not include the entire geographical range which the species could potentially occupy.  16 U.S.C. § 1532(5).   In making a critical habitat determination, the USFWS must consider economic impacts and other relevant impacts, as well as best scientific data. See, e.g., New Mexico Cattle Growers Association. v. United States Fish and Wildlife Service, 248 F.3d 1277 (10th Cir. 2001).   The USFWS may exclude any area from critical habitat if the benefits of the exclusion outweigh the benefits of specifying the area as critical habitat, unless the USFWS determines on the basis of best scientific and commercial data available that the failure to designate an area as critical habitat will result in the extinction of the species.

The Final Rules

In general.  The final rules are entitled, “Endangered and Threatened Wildlife and Plants; Revision of the Regulations for Listing Species and Designating Critical Habitat.”  83 Fed. Reg. 35,193 (Aug. 12, 2019).  The final rules will be codified at 50 C.F.R. pt. 424 and clarify the procedures and criteria that are used to add or remove species from the endangered and threatened species lists and how their critical habitat is designated.  The new rules also eliminate the rule that, by default, extended many prohibitions on endangered species to those species that only had threatened stats.  In addition, the final rules further define the procedures for interagency cooperation. 

The listing process.  The final rules modify the ESA listing process.  The final rule allows for economic impacts of the potential listing, delisting or reclassifying of a species to be accounted for.  The findings of anticipated economic impact must be publicly disclosed.  In addition, the Secretary must evaluate areas that are occupied by the species, and unoccupied  areas will only be considered “essential” where a critical habitat designation that is limited only to the geographical areas that a species occupies would be inadequate to ensure conservation of the species.  In addition, for an unoccupied area to be designated as critical habitat, the Secretary must determine that there is a reasonable certainty that the area will contribute to the conservation of the species and that the area contains one or more physical or biological features essential to the conservation of the species.  Also, a “threatened” listing for a species is to be evaluated in accordance with whether the species is likely to become endangered in the “foreseeable future” (as long as a threat is probable). 

The final rules also require any critical habitat for a listed species designation to first take into account all areas that a species occupies at the time of listing before considering whether any unoccupied areas are necessary for the survival or recovery of the species. On that point, a determination must be made that “there is a reasonable likelihood that the area will contribute to the conservation of the species” before designating any unoccupied area as critical habitat.  This is consistent with the U.S. Supreme Court opinion in Weyerhaeuser Co. v. United States Fish & Wildlife Service, 139 S. Ct. 361(2018), where the Court held that an endangered species cannot be protected under the ESA in areas where it cannot survive. 

The “blanket rule.”  The ESA statutory protections, including the prohibition on an “unauthorized take” of a species apply only to endangered species. However, the USFWS has automatically extended those protections to all species listed as threatened through a broad regulation known as the “blanket 4(d) rule.” The final rules remove these automatically provided protections to threatened species that are given to endangered species.  As a result, the USFWS will be required to develop additional regulations for threatened species on a case-by-case basis to extend the protections given endangered species.    

Agency cooperation.  The final rules also provide alternative mechanisms intended to improve the efficiency of ESA consultations conducted by the USFWS and federal agencies. The revisions include a process for expedited consultation in which a federal agency and the USFWS may enter into upon mutual agreement. A 60-day limit is included for completion of informal consultations with the option to extend the consultation to no more than 120 days.

Conclusion

The ESA has been termed the “pit bull” of environmental law.  It has a history since its enactment in 1973, and the landmark Supreme Court case of Tennessee Valley Authority v. Hill, 437 U.S. 153 (1978), of being the nation’s most controversial environmental law because of its impact on landowners and others.   The final regulations are an attempt to inject additional common-sense into the application of the ESA and align it to a greater extent to its original purpose.  Another intended impact is a decreased burden on farmers and ranchers.  Only time will tell if these goals are actually accomplished. 

September 5, 2019 in Environmental Law | Permalink | Comments (0)

Friday, August 16, 2019

Court Decision Illustrates USDA’s Swampbuster “Incompetence”

Overview

The conservation-compliance provisions of the 1985 Farm Bill introduced the concept of “swampbuster.” Swampbuster was introduced into the Congress in January of 1985 at the urging of the National Wildlife Federation and the National Audubon Society. It was originally presented as only impacting truly aquatic areas and allowing drainage to continue where substantial investments had been made. Thus, there was virtually no opposition to Swampbuster.

But, the “dirt is in the details” as it is often said.  Just how does the USDA determine if a tract of farmland contain a wet area that is subject to regulation?  That’s a question of key importance to farmers.  That process was also the core of a recent court opinion, in which the court painted a rather bleak and embarrassing picture of the USDA bureaucrats. 

Swampbuster and the USDA’s process for determining land subject to the Swampbuster rules – that’s the topic of today’s post.

Swampbuster Rules

The legislation charged the soil conservation service (SCS) with creating an official wetland inventory with a particular tract being classified as a wetland if it had (1) the presence of hydric soil; (2) wetland hydrology (soil inundation for at least seven days or saturated for at least 14 days during the growing season); and (3) the prevalence of hydrophytic plants under undisturbed conditions. In other words, to be a wetland, a tract must have hydric soils, hydrophytic vegetation and wetland hydrology.  The presence of hydrophytic vegetation, by itself, is insufficient to meet the wetland hydrology requirement and the statute clearly requires the presence of all three characteristics. B&D Land & Livestock Co. v. Schafer, 584 F. Supp. 2d 1182 (N.D. Iowa 2008).  

Under the June 1986 interim rules, wetland was assumed to be truly wet ground that had never been farmed. In addition, “obligation of funds” (such as assessments paid to drainage districts) qualified as commenced conversions, and the Fish and Wildlife Service (FWS) had no involvement in ASCS or SCS decisions. In September of 1986, a proposal to exempt from Swampbuster all lands within drainage districts was approved by the chiefs of the ASCS, SCS, FmHA, FCIC and the Secretary of Agriculture. However, the USDA proposal failed in the face of strong opposition from the FWS and the EPA.

The final Swampbuster rules were issued in 1987 and greatly differed from the interim rules. The final Swampbuster rules eliminated the right to claim prior investment as a commenced conversion. Added were farmed wetlands, abandoned cropland, active pursuit requirements, FWS concurrence, a complicated “commenced determination” application procedure, and special treatment for prairie potholes. Under the “commenced conversion” rules, an individual producer or a drainage district is exempt from Swampbuster restrictions if drainage work began before December 23, 1985 (the effective date of the 1985 Farm Bill). If the drainage work was not completed by December 23, 1985, a request could be made of the ASCS on or before September 19, 1988, to make a commencement determination. Drainage districts must satisfy several requirements under the “commenced conversion” rules. A project drainage plan setting forth planned drainage must be officially adopted. In addition, the district must have begun installation of drainage measures or legally committed substantial funds toward the conversion by contracting for installation or supplies.

The final rules defined “farmed wetlands” as playa, potholes, and other seasonally flooded wetlands that were manipulated before December 23, 1985, but still exhibited wetland characteristics. Drains affecting these areas can be maintained, but the scope and effect of the original drainage system cannot be exceeded. 7 C.F.R. § 12.33(b).  Prior converted wetlands can be farmed, but they revert to protected status once abandoned. Abandonment occurs after five years of inactivity and can happen in one year if there is intent to abandon.  A prior converted wetland is a wetland that was totally drained before December 23, 1985. Under 16 U.S.C. §3801(a)(6), a “converted wetland” is defined as a wetland that is manipulated for the purpose or with the effect of making the production of an agricultural commodity possible if such production would not have been possible but for such action.   See, e.g., Clark v. United States Department of Agriculture, 537 F.3d 934 (8th Cir. 2008).  If a wetland was drained before December 23, 1985, but wetland characteristics remain, it is a “farmed wetland” and only the original drainage can be maintained.

Identifying a Wetland – The Boucher Saga

The process that the USDA uses to determine the presence of wet areas on a farm that are subject to the Swampbuster rules (known as the “on-site” wetland identification criteria) are contained in 7 C.F.R. §12.31.   The application of the rules was at issue in the most recent opinion in a case involving an Indiana farm family’s longstanding battle with the USDA. 

Facts and administrative appeals.  The facts of the litigation reveal that the plaintiff (and her now-deceased husband) owned the farm at issue since the early 1980s. The farmland has been continuously used for livestock and grain production for over 150 years. The tenants that farm the land participated in federal farm programs. In 1987, the plaintiffs were notified that the farm might contain wetlands due to the presence of hydric soils.  This was despite a national wetland inventory that was taken in 1989 that failed to identify any wetland on the farm.  In 1991, the USDA made a non-certified determination of potential wetlands, prior converted wetlands and converted wetlands on the property. In 1994, the plaintiff’s husband noticed that passersby were dumping garbage on a portion of the property. To deter the garbage-dumping, the plaintiff’s husband cleaned up the garbage, cleared brush, and removed five trees initially and four more trees several years later.  The trees were upland-type trees that were unlikely to be found in wetlands, and the tree removal impacted a tiny fraction of an acre.  The USDA informed the landowners that the tree removal might have triggered a wetland/Swampbuster violation and that the land had been impermissibly drained via field tile (which it had not). 

Because the land at issue was farmed, the USDA’s Natural Resources Conservation Service (NRCS) used an offsite comparison field to compare with the tract at issue for a determination of the presence of wetland.  The comparison site chosen was an unfarmed depression that was unquestionably a wetland.  In 2002, an attempt was made to place the farm in the Conservation Reserve Program, which triggered a field visit by the NRCS. However, a potential wetland violation had been reported and NRCS was tasked with making a determination of whether a wet area had been converted to wetland after November 28, 1990. The landowners requested a certified wetland determination, and in late 2002 the NRCS made a “routine wetland determination” that found all three criteria for a wetland (hydric soil, hydrophytic vegetation and hydrology) were present by virtue of comparison to adjacent property because the tract in issue was being farmed. The landowners were notified in early 2003 of a preliminary technical determination that 2.8 acres were converted wetlands and 1.6 acres were wetlands.  The NRCS demanded that the landowners plant 300 trees per acre on the 2.8 acres of “converted wetland.”

The landowners requested a reconsideration and a site visit. Two separate site visits were scheduled and later cancelled due to bad weather. The landowners also timely notified NRCS that they were appealing the preliminary wetland determination and requested a field visit, asserting that NRCS had made a technical error. A field visit occurred in the spring of 2003 and a written appeal was filed of the preliminary wetland determination and a review by the state conservationist was requested. The appeal claimed that the field visit was inadequate.  The husband met with the State Conservationist in the fall of 2003.  No site visit occurred, and a certified final wetland determination was never made.  The landowners believed that the matter was resolved.

The husband died, and nine years later a new tenant submitted a “highly erodible land conservation and wetland conservation certification” to the FSA. Permission was requested from the USDA to remove an old barn and house from a field to allow farming of that ground. In late 2012, the NRCS discovered that a final wetland determination had never been made and a field visit was scheduled for January of 2013 shortly after several inches of rain melted a foot of snow on the property.  At the field visit, the NRCS noted that there were puddles in several fields.  The NRCS used the same comparison field that had been used in 2002, and also determined that underground drainage tile must have been present (it was not).   

Based on the January 2013 field visit, the NRCS made a final technical determination that one field did not contain wetlands, another field had 1.3 acres of wetlands, another field had 0.7 acres of converted wetlands and yet another field had 1.9 acres of converted wetlands. The plaintiff (the surviving spouse) appealed the final technical determination to the USDA’s National Appeals Division (NAD).   At the NAD, the plaintiff asserted that either tile had been installed before the effective date of the Swampbuster rules in late 1985 or that tiling wasn’t present (a tiling company later established that no tiling had been installed on any of the tracts); that none of the tracts showed water inundation or saturation; that none of the tracts were in a depression; and that the trees that were removed over two decades earlier were not hydrophytic, were not dispositive indicators of wetland, and that improper comparison sites were used.  The NRCS claimed that the tree removal altered the hydrology of the site.  The USDA-NAD affirmed the certified final technical determination.  The plaintiff appealed, but the NAD Director affirmed.  The plaintiff then sought judicial review.    

Trial court decision.  The trial court affirmed the NAD Director’s decision and granted summary judgment to the government.   Boucher v. United States Department of Agriculture, No. 1:13-cv-01585-TWP-DKL, 2016 U.S. Dist. LEXIS 23643 (S.D. Ind. Feb. 26, 2016). The court based its decision on the following:

  • The removal of trees and vegetation had the “effect of making possible the production of an agricultural commodity” where the trees once stood and, thus, the NRCS determination was not arbitrary or capricious with respect to the converted wetland determination.
  • The NRCS followed regulatory procedures found in 7 C.F.R. §12.31(b)(2)(ii) for determining wetland status on the land that was being farmed by comparing the land to comparable tracts that were not being farmed.
  • Existing regulations did not require site visits during the growing season.
  • “Normal circumstances” of the land does not refer to normal climate conditions but instead refers to soil and hydrologic conditions normally present without regard to the removal of vegetation.
  • The ten-year timeframe between the preliminary determination and the final determination did not deprive the plaintiff of due process rights.

Appellate Decision

The appellate court reversed the trial court decision and remanded the case for entry of judgment in the plaintiff’s favor and award her “all appropriate relief.”  Boucher v. United States Dep’t of Agric., No. 16-1654, 2019 U.S. App. LEXIS 23695 (7th Cir. Aug. 8, 2019).  On the comparison site issue (the USDA’s utilization of the on-site wetland identification criteria rules), the USDA claimed that 7 C.F.R. § 12.31(b)(2)(ii) allowed them to select a comparison site that was "on the same hydric soil map unit" as the subject property, rather than on whether the comparison site has the same hydrologic features as the subject tract(s).  The appellate court rejected this approach as arbitrary and capricious, noting that the NRCS failed to try an "indicator-based wetland hydrology" approach or to use any of their other tools when picking a comparison site. In addition, the appellate court noted a COE manual specifies that, “[a] hydrologist may be needed to help select and carry out the proper analysis" in situations where potential lack of hydrology is an issue such as in this case.   However, the NRCS did not send a hydrologist to personally examine the plaintiff’s property, claiming instead that a comparison site was not even necessary.  Based on 7 C.F.R. §12.32(a)(2), the USDA claimed, the removal of woody hydrophytic vegetation from hydric soils to permit the production of an agricultural commodity is all that is needed to declare the area "converted wetland."

The appellate court concluded that this understanding of the statue was much too narrow and went against all the other applicable regulatory and statutory provisions by completely forgoing the basis of hydrology that the provisions are grounded in.   Accordingly, the appellate court reasoned that because hydrology is the basis for a change in wetland determination, the removal of trees is merely a factor to determine the presence of a wetland, but is not a determining factor.  In addition, the appellate court pointed out that the NRCS never indicated that the removal of trees changed the hydrology of the property during the agency appeal process – a point that the USDA ignored during the administrative appeal process.   The appellate court rather poignantly stated, “Rather than grappling with this evidence, the hearing officer used transparently circular logic, asserting that the Agency experts had appropriately found hydric soils, hydrophytic vegetation, and wetland hydrology…”.

Conclusion

The USDA-NRCS was brutalized (rightly so) by the appellate court’s decision for its lack of candor and incompetence.  Those same agency characteristics were also illustrated in the Eighth Circuit decision of Barthel v. United States Department of Agriculture, 181 F.3d 934 (8th Cir. 1999).  Perhaps much of the USDA/NRCS conduct relates to the bureaucratic unilateral decision in 1987 to change the rules to include farmed wetland under the jurisdiction of Swampbuster.   That decision has led to abuse of the NAD process and delays that have cost farmers untold millions.  Hopefully, the clean-out of some USDA bureaucrats as a result of the new Administration that began in early 2017 will result in fewer cases like this in the future.  

August 16, 2019 in Environmental Law, Regulatory Law | Permalink | Comments (1)

Monday, June 17, 2019

Eminent Domain and Agriculture

Overview

Eminent domain is the power of a state to take private property for public use consistent with the state’s constitution.  In many states, the power has been legislatively delegated to municipalities, government subdivisions, as well as private persons and private corporations.  Sometimes, the exercise of eminent domain intersects with agriculture, particularly when a pipeline is being put in or a wind energy company wants to erect industrial wind towers and landowners object.

How broad is the power of eminent domain?  How do the federal and state constitutions protect private property?  What does “public use” mean?  Can a private company exercise eminent domain? 

The exercise of eminent domain at the state level and the impact on agriculture – that’s the focus of today’s post.

The Power to “Take” Property

The power to “take” private property for public use (or for a public purpose) without the owner's consent is an inherent power of the federal and state government. However, the United States Constitution limits the government's eminent domain power by requiring federal and state governments to pay for what is “taken.”  U.S. Const. 5th Amend.  The “takings” clause of the Fifth Amendment has been held to apply to the states since 1897. Chicago, Burlington and Quincy Railroad Co., v. Chicago, 166 U.S. 226 (1897).

The Fifth Amendment states in part “...nor shall private property be taken for public use without just compensation.” Just compensation” equals fair market value, generally in cash. For partial takings, “severance damages” may be awarded in addition to compensation for the part taken. See, e.g., Sharp v. United States, 191 U.S. 341 (1903).  The clause has two prohibitions: (1) all takings must be for public use; and (2) even takings that are for public use must be accompanied by compensation. 

What Does “Public Use” Mean?

Historically, the “public use” requirement operated as a major constraint on government action. For many years, the requirement was understood to mean that if property was to be taken, it had to be used by the public – the fact that the taking was “beneficial” was not enough. Eventually, however, courts concluded that a wide range of uses could serve the public even if the public did not, in fact, have possession. Indeed, so many exceptions were eventually built into the general rule of “use by the public” that the rule itself was abandoned. In 1954 and again in 1984, the U.S. Supreme Court demonstrated its willingness to define expansively “public use,” and confirmed the ability of a state to use eminent domain power to transfer property outright to a private party, so long as the exercise of the eminent domain power was rationally related to a conceivable public purpose.

In recent years, however, state courts have split on the issue of whether the government’s eminent domain power can be exercised to take private homes and businesses for the development of larger businesses by private companies. The argument is that the larger businesses enhance “economic development” that increases jobs and tax revenue in the area and that this satisfies the Fifth Amendment’s “public use” requirement.  However, in Bailey v. Myers, 206 Ariz. 224, 76 P.3d 898 (Ariz. Ct. App. 2003), the court determined that the condemnation of private property for redevelopment and sale to private parties was unconstitutional because the proposed use of the property was not public.  Similarly, the Michigan Supreme Court has ruled that the exercise of the eminent domain power is proper only if (1) the private entities involved are public utilities that operate highways, railroads, canals, power lines, gas pipelines, and other instrumentalities of commerce; (2) the property remains under the supervision or control of a governmental entity; or (3) the public concern is accomplished by the condemnation itself (i.e., blighted housing has become a threat to public health and safety). County of Wayne v. Hathcock, 684 N.W.2d 765 (Mich. 2004).

 In 2005, the Supreme Court clarified the difference among the states by again ruling that the eminent domain power can be exercised on behalf of a private party for economic development that benefits the public by increasing jobs and the tax base in the area. Kelo, et al. v. City of New London, 545 U.S. 469 (2005)Thus, if the exercise of eminent domain for a private party is done in conjunction with a development plan and does not involve obvious corruption, the taking will be allowed (and compensation will have to be paid).  While the Supreme Court’s Kelo decision was a landmark one, the Court clearly deferred to states on the issue.  At the federal level, if the condemnation of property is rationally related to a legitimate purpose of government (rather low hurdle to overcome) the taking will be approved.  But, any particular state could restrict the exercise of eminent domain on behalf of private parties if they so desired. 

In the wake of Kelo, several states either amended the state statutory process for proceedings involving condemnation of private property, or have amended the state constitution. Shortly after the Kelo decision, the Ohio Supreme Court has held that a taking providing nothing other than an economic benefit violates the Ohio constitution. City of Norwood v. Horney, 853 N.E.2d 1115 (Ohio 2006). The Ohio Supreme Court has previously held that Ohio landowners have a property interest in the groundwater underlying their land such that governmental interference with that right can constitute a taking. McNamara v. City of Rittman, 838 N.E .2d 640 (Ohio 2005)

What Does “Property” Mean?

The term “property” in the context of eminent domain, connotes all types of ownership interests – fee simple; partial interests; future interests; surface interests and even, perhaps, sub-surface interests.  For example, in The Edwards Aquifer Authority, et al. v. Day, et al. 369 S.W.3d 814 (Tex. Sup. Ct. 2012), the Texas Supreme Court unanimously held, on the basis of oil and gas law, that landownership in TX includes interests in in-place groundwater.  As such, water cannot be taken for public use without adequate compensation guaranteed by Article I, Section 17(a) of the TX Constitution. In the case, the plaintiffs were farmers that sought permit to pump underground water for crop irrigation purposes. The underground water at issue was located in the Edwards Aquifer and the plaintiffs' land was situated entirely within the boundaries of the aquifer. A permit was granted, but water usage under the permit was limited to 14 acre-feet of water rather than 700 acre-feet that was sought because the plaintiffs could not establish "historical use." The Court determined that the plaintiff's practice of issuing permits based on historical use was an unjustified departure from the Texas Water Code permitting factors.

Recent Case – The Dakota Access Pipeline

A recent opinion issued by the Iowa Supreme Court involving a pipeline seeking to exercise eminent domain, illustrates the intersection of the concept with agriculture.  In Puntenney, et al. v. Iowa Utilities Board, No. 17–0423, 2019 Iowa Sup. LEXIS 69 (Iowa Sup. Ct. May 31, 2019), the Court was faced with the Dakota Access Pipeline that sought to use eminent domain against farmland owners so that its pipeline could be completed.  The pipeline was piping oil from the oil fields of northwest North Dakota to southern Illinois. In 2014, the pipeline company filed documents with the Iowa Utilities Board (IUB) signifying its intent to lay a pipeline. The pipeline would traverse Iowa from the northwest corner to the southeast corner of the state, passing through eighteen counties over approximately 343 miles. At the end of 2014, the pipeline company held meetings in all eighteen counties.

In 2015, the pipeline company petitioned the IUB to start construction and sought “the use of the right of eminent domain for securing right of way for the proposed pipeline project” due to several landowners in the path of the pipeline refusing to grant an easement. The pipeline asserted such authority as a “common carrier” (a public or private entity that carries goods or people). In November and December of 2015, the IUB held hearings on the petition. Hundreds of people were present to give testimony for both sides. On March 10, 2016, the IUB issued a 159-page final decision and order. This order found that the pipeline would promote the public convenience and necessity, involve a capital investment in Iowa of $1.35 billion, and generate $33 million in Iowa sales tax during construction and $30 million in property tax in 2017. The order also noted that the pipeline had utilized a software program to lay the pipeline’s path to avoid critical areas, and that state law gave the pipeline the power to exercise eminent domain where necessary. After the IUB’s issuance of the order, several motions for clarification and rehearing were filed, which the IUB denied. Numerous parties sought judicial review of the order, and the parties were consolidated into a single case. On February 15, 2017, the trial court denied the petitions for judicial review.

On further review, Iowa Supreme Court addressed numerous issues. The Court determined that the Iowa Chapter of the Sierra Club had standing under state law on behalf of its affected members.  Those members, the Court noted under Iowa law, did not need to be landowners, just aggrieved or adversely affected by “agency action.”  On the legal issues, the Court looked at the standing of the parties. While the pipeline had already largely been constructed, the Court determined that the matter was not moot because the IUB retained the authority to impose other “terms, conditions, and restrictions” in the petitioners’ favor. On the IUB’s authority to issue a construction permit to the pipeline company based on the promotion of public convenience and necessity, the Court determined that the IUB’s decision to grant the permit was not “[b]ased upon an irrational, illogical, or wholly unjustifiable application of law” and its factual determinations were supported by “substantial evidence.” The Court noted that the evidence showed that the pipeline would reduce oil transport costs which would provide a lower price for petroleum products; transport oil more safely than rail; and provide secondary economic benefits to the citizens of Iowa. However, the Court did conclude that private economic development, by itself, is not a valid “public use.”  Thus, the Court rejected the U.S. Supreme Court’s holding in Kelo - joining Illinois, Michigan, Ohio and Oklahoma. The Court also did not find any violation of the statutory limit on the use of eminent domain with respect to farmland because the pipeline company was a common carrier under the IUB’s jurisdiction – an entity not statutorily limited on the use of eminent domain on farmland. Thus, the Iowa Constitutional provision on the use of eminent domain was not violated, nor was the Fifth Amendment of the U.S. Constitution. The Court also upheld the IUB’s determination that the pipeline route was proper and need not be rerouted based on speculative surface development, but did conclude that the pipeline be laid under existing field drainage tile where necessary.

Conclusion

The use of eminent domain at the state level and taking of private property at the federal level is a significant concern for many farmers and ranchers.  Certainly, the government must pay for what it takes (the issue of compensation is a topic for another day), but the extent to which a public use must be present is a key issue.  The recent Iowa decision sheds some light on the question – at least in Iowa. 

June 17, 2019 in Environmental Law, Regulatory Law | Permalink | Comments (0)

Wednesday, June 5, 2019

Public Trust vs. Private Rights – Where’s the Line?

Overview

Centuries ago, the seas were viewed as the common property of everyone -  they weren’t subject to private use and ownership.  This concept was later adopted in English law, the Magna Carta, and became part of the common (non-statutory) law in the United States.  Over the years, the doctrine has been primarily applied to access to the seashore and intertidal waters, but it can also be applied with respect to natural resources.  A recent case involving seaweed involved the application of the public trust doctrine.

The public trust doctrine and the right to harvest seaweed – that’s the topic of today’s post.

In General

The U.S. Supreme Court’s first application of the public trust doctrine was in 1842 in Martin v. Lessee of Waddell, 41 U.S.367 (1842). In the case, the issue was who had the right to submerged land and oyster harvesting off the coast of New Jersey.  The Court, largely based on the language in the charter granted by the King to a Duke to establish a colony and for policy and economic reasons, determined that the land area in issue belonged to the state of New Jersey for the benefit of the people of the state.  The Court dealt with the issue again in 1892 in a case involving a railroad that had been granted a large amount of the Chicago harbor. Illinois Central Railroad Company v. Illinois, 146 U.S. 387 (1892).  The Court determined that the government cannot alienate (interfere with) the public’s right to access land under waters that are navigable in fact except for situations where the land involved wouldn’t interfere with the public’s ability to access the water or impair navigation. 

As generally applied in the United States (although there are differences among the states), an oceanfront property owner can exclude the public below the mean high tide (water) line.  See e.g., Gunderson v. State, 90 N.E. 3d 1171 (Ind. 2018)That’s the line of intersection of the land with the water's surface at the maximum height reached by a rising tide (e.g., high water mark).  Basically, it’s the debris line or the line where you would find fine shells.  However, traceable to the mid-1600s, Massachusetts and Maine recognize private property rights to the mean low tide line even though they do allow the public to have access to the shore between the low and high tide lines for "fishing, fowling and navigation.  In addition, in Maine, the public can cross private shoreline property for scuba diving purposes.  McGarvey v. Whittredge, 28 A.3d 620 (Me. 2011). 

Other applications of the public trust doctrine involve the preservation of oil resources, fish stocks and crustacean beds.  Also, many lakes and navigable streams are maintained via the public trust doctrine for purposes of drinking water and recreation. 

Recent Case

The public trust doctrine was invoked recently in a Maine case.  In Ross v. Acadian Seaplants, Ltd., 2019 ME 45 (2019), the defendants harvest rockweed with skiffs in the intertidal zones of Maine. Rockweed is a perennial plant that attaches to the rocks in the intertidal zones. Rockweed regulates the temperature of the area where it is located and is home to many organisms. Commercially, rockweed is used for fertilizer and feed. To harvest Rockweed, the defendant uses skiffs, rakes, and watercraft without physically stepping foot on the intertidal zone. The defendant annually harvests the statutory maximum 17 percent of eligible harvestable rockweed biomass in Cobscook Bay. The plaintiff, an intertidal landowner, sued seeking (1) a declaratory judgment that the plaintiff is the exclusive owner of the rockweed growing on and affixed to his intertidal property; and (2) injunctive relief that would prohibit the defendant from harvesting rockweed from the plaintiff’s intertidal land without his permission. The defendant sought a judgment declaring that harvesting rockweed from the intertidal water is a public right as a form of "fishing" and "navigation" within the meaning of the Colonial Ordinance. The trial court granted summary judgment for the plaintiff on the declaratory judgment claim, and on the defendants’ counterclaim. The trial court denied the defendant’s counterclaim.

On appeal, the state Supreme Court affirmed, holding that rockweed that is attached to and growing on rocks in the intertidal zone is private property owned by the adjacent landowner.  The Court noted that the English common law tradition vested both “title” to and “dominion” over the intertidal zone in the crown.  While title belonged to the crown, however, it was held subject to the public’s rights of “navigation,” “commerce,” and “fishing.”  After the American colonies gained independence, the ownership of intertidal land devolved to the particular state where the intertidal area was located.  See, e.g., Phillips Petroleum Co. v. Mississippi, 484 U.S. 469 (1988)But, the Court noted the uniqueness of rockweed.  It takes specialized equipment and skills to harvest it, and harvesting didn’t “look like” the usual activities in the water of fishing and navigation. Instead, it was more like the other uses in the intertidal zone that have been held to be outside the public trust doctrine.  Thus, the Court concluded that the harvesting of rockweed was not within the collection of rights held by the State for use by its citizens – the public couldn’t engage in rockweed harvest as a matter of right.  The Court stated that, "rockweed in the intertidal zone belongs to the upland property owner and therefore is not public property, is not held in trust by the State for public use, and cannot be harvested by members of the public as a matter of right."

Conclusion

The application of the public trust doctrine has the potential to be quite broad.  Environmental activists and others opposed to various agricultural activities often attempt to get courts to apply the doctrine in an expansive manner well beyond public access to that of preservation in general.  The potential application of the doctrine can be rather expansive – nonpoint source pollution from farm field runoff; wetlands; dry sand areas; cattle ranching in areas of the West, etc.  See, e.g., Mathews v. Bay Head Improvement Association, 471 A.2d 355 (N.J. 1984).  The issue is acute in California where a private party can bring an independent action against a state agency under the public trust doctrine when that agency allegedly doesn’t follow the public trust in the conduct of its duties.  See Citizens for Biological Diversity, Inc. v. FPL Group, Inc., 83 Cal. Rptr. 3d 588 (Cal Ct. App. 2008); San Francisco Baykeeper, Inc. v. State Lands Commission, 29 Cal. App. 5th 562, 240 Cal. Rptr. 3d 510 (2018)

In the recent Maine case, the public trust doctrine was not used to unnecessarily erode private property rights.  The Court balanced the public’s rights against those of private property owners.  It wasn’t enough for the plaintiff to simply assert the public trust doctrine. 

Maybe there’s hope that the public trust doctrine will be properly balanced against the rights of private landowners.  The recent Maine case weighs in on that side of the scale. 

June 5, 2019 in Civil Liabilities, Environmental Law, Real Property | Permalink | Comments (0)

Tuesday, April 16, 2019

Does Soil Erosion Pose A Constitutional Issue?

Overview

When we think of the Constitution, we tend to think of freedom of religion or freedom of the press.  Maybe due process or equal protection comes to mind.  Hardly ever does the right to not have soldiers quartered in our homes during peace time without consent ever cross one’s mind.  Neither does soil erosion.    But, is there a connection?

Soil erosion and the Constitution – that’s the topic of today’s post.

Soil Erosion

In terms of quantity, sediment - the soil or mineral material transported by water and deposited in streams or other bodies of water - is the worst pollutant of the nation's waters. While the non-farm media tends to pin the blame on agriculture, and it is true that a significant portion of it results from soil erosion of farmland, much of the sediment comes from nonagricultural activities.  In either situation, the most effective way of controlling soil erosion is by the use of proper soil conservation practices and techniques.  The nation’s farmers and ranchers are to be commended for utilizing them.  The few “bad apples” that exist give a bad rap to the vast majority who carefully and thoughtfully utilize good husbandry practices. 

Federal regulation.  The federal government has long been concerned with the problem of soil erosion. Two major agencies within the United States Department of Agriculture (USDA) that have substantial soil erosion responsibilities are the Natural Resource Conservation Service (NRCS) and the Farm Service Agency (FSA). In general, the federal soil conservation programs are limited to conservation incentives in the form of technical assistance and cost sharing. The Soil Conservation Service (SCS) was created in 1935 to be the primary federal agency involved in soil erosion control. Its programs, consisting mainly of technical assistance, are administered in cooperation with local soil and water conservation districts. The Agricultural Stabilization and Conservation Service (forerunner of the FSA) was created at approximately the same time as the SCS, but for a different purpose. The original purpose of the ASCS was to be the vehicle for administering the Agricultural Adjustment Act (AAA) of 1938, an act that provided for a series of direct payments to farmers in exchange for their participation in acreage reduction programs.  When the initial acreage reduction program was held unconstitutional in United States v. Butler, 297 U.S. 1 (1936), a temporary program was instituted to provide payments to farmers for planting cover crops to conserve soil, a backdoor means of lowering the production of certain agricultural commodities, and thereby increasing crop prices. That program was continued in the Soil Bank and continues presently in the form of the Conservation Reserve Program . 

State regulation.  Many states also have soil erosion and sediment control statutes that require landowners to take certain actions designed to minimize soil erosion. In some states, such as Kansas, the burden is placed upon local county commissioners to take action designed to minimize soil erosion.

Constitutional issue? 

1979 Iowa case.  Landowners occasionally have challenged the validity of state soil erosion laws on the basis that the statutes are an unconstitutional exercise of the state's police power.  In an Iowa case, Woodbury County Soil Conservation District v. Ortner, 279 N.W.2d 276 (Iowa 1979), one landowner filed a complaint against an adjacent landowner with the plaintiff (county soil conservation district) claiming that his farm was being damaged by water and soil erosion from the defendant’s land.  Ultimately, complaint was settled without the plaintiff taking any action.  However, the next year the same landowner filed another complaint claiming similar damage.  This time the county soil conservation district investigated in accordance with state law and found that the soil loss on both adjoining farms exceeded the statutory limit.  The plaintiff ordered both landowners to remedy the situation within six months and gave them two options:  1) seed the land to permanent pasture or hay; or 2) terrace the land.  They did nothing, and the county soil conservation district sued to enforce its order.  It was undisputed that terracing would cost the defendant about $12,000 and the adjoining landowner approximately $1,500.  In addition, some of each landowner’s farmland would become untillable.  While seeding the ground to pasture or hay was less expansive, some of the farmland would be removed from crop production.  There was a dispute concerning whether either alternative would decrease the value of the land.  The defendant challenged the soil conservation statute under which the county soil conservation district acted as unconstitutional – it amounted to a taking of private property without just compensation as the Fifth Amendment required.  The defendant also claimed that the state law was an unreasonable and illegal exercise of the state’s “police power.”  

The trial court agreed with the defendant and struck the state statute down.  The law, the trial court said, placed an unreasonable burden on the defendant that was unduly oppressive and deprived them of their rights under the Fifth and Fourteenth Amendments of the U.S. Constitution and comparable provisions of state law. 

On appeal, the Iowa Supreme Court reversed.  The Supreme Court noted that the state had a vital interest in protecting its soil “as the greatest of natural resources” and that it has a right to do so based on the declared purpose of the statute at issue.  Under that language, it is the duty of each landowner to establish and maintain soil and water conservation practices or erosion control practices, in accordance with soil conservation district regulations.  Ultimately, the Supreme Court determined that the sate law was reasonably related to carrying out its announced purpose of soil control, and that control of soil erosion was a proper exercise of the state’s police power.  The Supreme Court also noted that the state was willing to cost-share with the landowners to the tune of about three-fourths of the total bill.  The Supreme Court said that the fact that a person must incur substantial expenditures to comply with valid regulations did not raise a constitutional issue.  The defendants still had the use and enjoyment of their property.     

The Iowa Supreme Court's opinion in Ortner upheld the neighbor's private property right to be free from damage caused by an adjacent farm's excessive water and soil erosion. In essence, the state can enact legislation to prevent a nuisance resulting from excessive soil and water erosion. 

Recent Case

In Brown v. United States, No. 18-801L, 2019 U.S. Claims LEXIS 231 (Fed. Cl. Mar. 15, 2019), the plaintiff operated a sod farm on land the plaintiff owned in Oklahoma along a river.  The river is south of a lake.  In 1974, the federal government completed the lake dam, which has a spillway that releases water when it floods. The spillway discharges water and sediment downstream, directly across from plaintiff’s property. Since 1986 (the first use of the spillway) the spillway has been used 17 times. In 1990 the plaintiffs first complained of the water from the spillway eroding their property where they operate a sod farm. The plaintiff contacted the U.S. Army Corps of Engineers (COE) in 2003, 2004, 2007, 2008, 2009, 2011, 2015, and 2016 concerning the erosion. The COE continually maintained that it "will not—and cannot—mitigate the erosion," explaining that "there is no program that authorizes the “COE” to directly address the [plaintiff’s] situation.”

In 2015, the erosion rendered the plaintiff’s center pivot inoperable. The plaintiff spent approximately $10,000 on new irrigation equipment to continue business operations and approximately $15,000 on riprap to prevent further erosion. In 2018, the plaintiff filed sued, claiming that over eight acres of the plaintiff’s land had been lost due to erosion from the water released from the spillway.  The plaintiff sought compensation under the Fifth Amendment as a compensable taking of their property.

The Government moved to dismiss this claim, but the court denied the motion on the basis that the “continuing claims” doctrine applied.  Under that doctrine, the court concluded, each release of water through the spillway constituted a discreet takings claim. The Government claimed that the court lacked subject matter jurisdiction on the basis that the plaintiffs’ claim was barred by the statute of limitations as it accrued in 1990 when the plaintiffs first noticed the erosion. However, the plaintiffs asserted that the statute of limitations did not begin to run until 2015 when their operation had to be altered because of the erosion. Further, the plaintiffs asserted that the “continuing claims” doctrine should extend their claim because each use of the auxiliary spillway constituted a new breach of duty by the Government.

The court agreed with the plaintiff, and also pointed out that erosion-type takings involve an act of “taking” that occurs over a long period of time. Thus, the statute of limitations does not begin to run until the situation “stabilizes.” Ultimately, the court held that the record had not been developed sufficiently for the court to determine when the erosion stabilized. Hence, the Government’s motion to dismiss was denied for further development of the record. 

Conclusion

 

Soil erosion issues loom large in agriculture.  Sometimes, the Constitution gets involved in the mix.  When it does, some interesting issues are involved. 

April 16, 2019 in Environmental Law | Permalink | Comments (0)

Tuesday, February 19, 2019

Big EPA Developments – WOTUS and Advisory Committees

Overview

In the past few days, two big developments of importance to agriculture have occurred. Both involve the Environmental Protection Agency (EPA).  Last week, the EPA published its proposed rule redefining “waters of the United States” (WOTUS), triggering a 60-day comment period.  In another development, a federal trial court ruled that the EPA has the authority to bar persons currently receiving grant money from the EPA to serve on EPA scientific advisory committees.  Both of these developments are important to agriculture.

Recent EPA developments of importance to agriculture – that’s the topic of today’s post.

WOTUS Redefined

In prior posts over the past couple of years, I have detailed the continuing saga of the WOTUS rule – first as proposed by the Obama Administration’s EPA in 2015; the subsequent court battle; the new proposal by the Trump Administration’s EPA in 2017; more court litigation; and now a revised proposed definition that attempts to clarify what waters are subject to federal jurisdiction under the Clean Water Act (CWA). 

On December 11, 2018, the EPA and the U.S. Army Corps of Engineers (COE) proposed a new WOTUS definition.  That new definition was published in the Federal Register on Feb. 14, 2019.  82 FR 34899 (Feb. 14, 2019).  The proposed definition is subject to a 60-day public comment period that will close on April 15, 2019.  The publication of this new definition is 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 CWA. 

Drainage tile and ephemeral streams.  Under the newly proposed WOTUS definition, 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).  This specificity shuts the door on the argument set forth in and rejected by the Iowa Supreme Court (construing Iowa law) in a 2017 decision.  See Board of Water Works Trustees of the City of Des Moines v. Sac County Board of Supervisors as Trustees of Drainage Districts 32, 42, 65, 79, 81, 83, 86, et al., No. C15-4020-LTS, 2017 U.S. Dist. LEXIS 39025 (N.D. Iowa Mar. 17, 2017)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, PC wetland and farmed wetland.  The proposed rule also excludes ditches 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…”.   What is a “typical year”?  For starters, it doesn’t include periods of drought or extreme flooding.  It is one that is within the “normal range of precipitation” over a rolling 30-year period for a “particular geographic area.”  Tributaries “…do not include surface features that flow only in direct response to precipitation, such as ephemeral flows, dry washes, and similar features.”  In other words, dry channels are not “tributaries.”  There must be more than an insubstantial water flow to support federal jurisdiction as a tributary to a WOTUS.

Prior converted (PC) cropland is also not a WOTUS under the proposed WOTUS definition.  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).    

One unanswered question is whether the EPA will accept federal farm program wetland mappings.  It would be nice if the new WOTUS definition would include the same standard as USDA on this issue.  If not, on this issue, farmers will be subject to two distinct federal agencies with two distinct standards.  

Artificial irrigation, lakes and ponds.  The proposed WOTUS definition also would exclude areas that are artificially irrigated.  This is an important exception for rice and cranberry farmers.  See, e.g., United States v. Johnson, 467 F.3d 56 (1st Cir. 2006).  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.  This follows the rationale of a U.S. Supreme Court opinion in 2006.  See Rapanos v. United States, 547 U.S. 715 (2006).  The only catch is if they are covered under other sections of the proposed rule.  For example, a lake or a pond that is “susceptible” to use in interstate or foreign commerce or is subject to a tide’s ebb and flow is deemed to be a WOTUS.  See 33 C.F.R. §328.3.  Likewise, a lake or a pond that contributes “perennial or intermittent flow” to navigable waters of the United States is deemed to be a WOTUS.  What does that mean?  It would appear to mean that only those lakes and ponds that actually have some material influence on navigable waters satisfies the definition of a WOTUS.  Id. 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).  But, what about headwater streams that are made artificially perennial by subsurface drainage systems?  Are those to be excluded from the WOTUS definition?  Also, how are ditches that have been excavated into groundwater to be treated if they don't receive perennial surface flows?  Hopefully these two questions will be clarified.

In addition, 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.

Hydrological connections.  The proposed definition says that “[a] mere hydrological connection from a non-navigable, isolated, intrastate lake or pond…may be insufficient to establish jurisdiction under the proposed rule.”  While that seems to be a bit vague, the proposal does state that flooding that occurs once in 100 years into a WOTUS does not trigger federal jurisdiction.  What is clear, however, is that “…ecological connections between physically separated lakes and ponds and otherwise jurisdictional waters” are not under federal control.  This is a major point concerning the proposed WOTUS definition. 

EPA Advisory Committees

A recent federal court decision, Physicians for Social Responsibility v. Wheeler, No. 1:17-cv-02742 (TNM), 2019 U.S. Dist. LEXIS 22276 (D. D.C. Feb. 12, 2019), ended an Obama-era EPA policy of allowing EPA advisory committee members to be in present receipt of EPA grants.  When President Trump took office, he nominated Scott Pruitt to be head of the EPA.  After Senate confirmation, Secretary Pruitt issued a directive regarding membership in its federal advisory committees specifying “that no member of an EPA federal advisory committee be currently in receipt of EPA grants.” The directive reversed an Obama-era rule that allowed scientists in receipt of EPA grants to sit on advisory panels.  That rule was resulting in biased advisory committees stacked with committee members that opposed coal and favored an expansive “Waters of the United States” rule among other matters. The plaintiffs were a group of individuals and organizations who were receiving EPA research grants, and were either serving on an EPA advisory committee or hoped to serve on a committee. They claimed that the new directive illegally barred grant recipients from being members of the advisory committees, and filed suit to invalidate the directive. The EPA claimed that appointment policy was reserved to agency discretion, and that the plaintiffs failed to allege a violation of any specific statutory provision.

The trial court agreed with the EPA’s position, finding that when making appointments to the committees, agency heads have complete discretion “unless otherwise provided by statute, Presidential directive, or other established authority.” One such restriction on their discretion, the trial court noted, is the applicable ethics rules, found in 18 U.S.C. §208, and the accompanying regulation that dictate that a grant recipient can participate on an EPA advisory committee without incurring liability. However, the court reasoned that while someone may serve on an advisory committee without incurring liability under the conflict of interest statute, that does not dictate that an agency must appoint him as a member.  In other words, the conflict of interest rules function as a floor, not a ceiling, for acceptable government service.

The plaintiff also claimed that the EPA failed to adequately explain its change in policy, and challenged it as arbitrary and capricious. However, the trial court determined that the arbitrary and capricious standard cannot be enough, by itself, to provide a meaningful standard for the court. Instead, the court explained that, “When an agency departs from its prior policy, it must display awareness that it is changing position, and it ‘must show that there are good reasons for the new policy.’ But it need not establish ‘that the reasons for the new policy are better than the reason for the old ones; it suffices that the new policy is permissible under the statute, that there are good reasons for it, and that the agency believes it to be better...’” This “reasonable and reasonably explained’ standard is deferential, so long as the agency’s action – and the agency’s explanation for that action – falls within a zone of reasonableness.” In defending its policy change, the EPA explained that “while receipt of grant funds from the EPA may not constitute a financial conflict of interest, receipt of that funding could raise independence concerns depending on the nature of the research conducted and the issues addressed by the committee.” Thus, the change was necessary “to ensure integrity and confidence in its advisory committees.” The trial court found the EPA’s explanation to be within the zone of reasonableness. Based on these findings, the trial court held that the EPA action was rational, considered the relevant factors and within the authority delegated to the agency, and granted the EPA’s motion to dismiss the case. 

Conclusion

The newly proposed WOTUS rule is designed to clarify just exactly what constitutes waters over which the federal government has regulatory authority.  It is a tighter definition in many respects than the 2015 version was.  Public hearings will be held during the 60-day comment period.  For those in the Midwest and Great Plains, public hearing will be held at the EPA building in Kansas City, KS on February 27 and 28.  For those wishing to submit written comments by the April 15 deadline, the comments should be identified by Docket ID No. EPA-HQ-OW-2018-0149 and submitted to the Federal Rulemaking Portal at: https://www.regulations.gov 

In addition, removing potential bias from EPA advisory committees is another step in the right direction.  Both developments have big implications for agriculture.

February 19, 2019 in Environmental Law | Permalink | Comments (0)

Thursday, January 10, 2019

Top Ten Agricultural Law and Tax Developments of 2018 – Numbers 3, 2 and 1

Overview

Since the blog post on December 31, I have been surveying the biggest developments in agricultural law and taxation of 2018.  The first post looked at those developments that were not quite big enough to make the Top 10.  Subsequent posts have examined developments 10 through 4.  That brings us to today – the biggest three developments of 2018 in agricultural law and taxation. 

Number 3 – The 2018 Farm Bill

In general.  In late 2018, a new Farm Bill passed the Congress and was signed into law.  As for cost, the total estimated price tag for the Farm Bill is $867 billion (a large portion of that total is devoted to Food Stamps) and it didn’t address the estimated $32 billion in in cost overruns on price loss coverage (PLC) and agriculture risk coverage (ARC) of the prior Farm Bill.

The Farm Bill, like prior law, doesn’t treat all entities that are similarly taxed the same under the attribution rules.  In other words, an entity must either be a general partnership or a joint venture to not be limited in payment limits at the entity level.   Also remaining the same is the $900,000 AGI limitation to be eligible to participate in federal farm programs.  The general $125,000 payment limit also remains the same.     

Crop reference prices.  Reference prices (for PLC) will be the greater of the current reference price; or 85 percent of the average of the marketing year average price for the most recent five-year period, excluding the high and low prices.  If base acres were not planted to a covered crop from 2009-2017, the base acres will be maintained but won’t be eligible for any PLC or ARC payments.  The old reference price will be used or the “effective reference price” (ERP).  The ERP is used each year and used in determining if there will be a PLC payment.  The ERP will never be lower than the current reference price and can never be higher than 115% of the current reference price (from the 2014 Farm Bill).  That means that it is possible for the reference price to increase when prices decrease.   The ERP will be calculated annually based on 85 percent of the Olympic Average of the mid-year average prices for the last five crop years (eliminating the highest and lowest prices).  If this number is higher, it is then compared to 115 percent of the current reference price.  If it is lower, it will be the effective reference price for that crop year.  If it is higher than the 115 percent, it will be limited to 115 percent.  Presently, most major crops are not close to any adjustment to the reference price for at least the next couple of years. 

The Farm Bill give participating producers a one-time opportunity to update program yields.  The update is accomplished by means of a formula.  The formula takes 90 percent of the average yield for crops from 2013-2017 and reduces it by a ratio that compares the 2013-2017 national average yields with the average for 2008-2012 crops.  That producers a “yield update factor” that determines the portion of the initial 90 percent that can be used to update program yields.  The update factor will vary from crop to crop.   

As for ARC, it will be based on physical location of the farm and RMA data will have priority.  If a farm crosses county lines, ARC payments will be computed on a pro-rata basis in accordance with the acres in each county with irrigated and non-irrigated payments being calculated for each county.  Also, the USDA, with respect to ARC, will use a yield plug of 80 percent of the “transitional yield” and will calculate a trend-adjusted yield that will be used in benchmark calculations.

Other features.  The Farm Bill contains numerous other provision of importance.  The following is a bullet-point list of a few of the more significant ones:

  • While a producer is locked into either PLC or ARC for 2019-2020, an annual election can be made to change the election beginning in 2021.
  • The dairy margin program has been enhanced significantly such that smaller scale dairy producers are major beneficiaries under the Farm Bill.
  • The CRP acreage cap is increased from 24 million acres to 27 million acres by 2023 (with CRP rental rates limited to 90 percent of the county average rental rate for land enrolled via the continuous enrollment option, and 85 percent of the county average for general enrollments). Two million acres are reserved for grasslands.
  • The Conservation Stewardship Program (CSP) is reauthorized, but eliminated is the acre-based funding cap and the $18/acre national average payment rate. Spending is also capped at $1 billion annually. 
  • The Environmental Quality Incentives Program (EQIP) gets enhanced funding (by $.25 billion) with half of the increase pegged for livestock.
  • Farm direct ownership loans are increased from $300,000 to $600,000, and guarantees are enhanced from $700,000 to $1,750,000.
  • The Farm Bill increases loan rates by 13-24 percent for grains and soybeans. The new loan rates are$2.20 for corn; $6.20 for soybeans; $3.38 for wheat; $2.20 for sorghum; $2.50 for barley; $2.00 for oats.
  • Base acres that were planted entirely to grass and pasture from 2009-2017 will not be eligible for farm program payments, but will be eligible for a five-year grassland incentive contract with the “rental amount” set at $18/acre.
  • Crop insurance is not significantly changed, but modifications to crop insurance are designed to incentivize the use of cover crops.
  • Hemp is added as an “agricultural commodity” eligible for taxpayer subsidies and it is removed from the federal list of controlled substances.
  • Nieces nephews and first cousins can qualify for payments without farming;
  • Work is not required to get food stamps;
  • New taxpayer subsidies are proved for hops and barley.
  • The Farm Bill codifies many changes to the National Organic Standards Board and how the Board represents the public and the USDA on matters concerning organic crops.

Number Two - Waters of the United States (“WOTUS”) Developments

In general.  The Clean Water Act (CWA) makes illegal the discharging of dredge or fill material into the “navigable waters of the United States” (WOTUS) without first obtaining a permit from the Secretary of the Army acting through the Corps of Engineers (COE).  Unfortunately, just exactly what is a WOTUS that is subject to federal regulation has been less than clear for many years and that uncertainty has resulted in a great deal of litigation.  In 2006, the U.S. Supreme Court had a chance to clarify the matter but failed.  Rapanos v. United States, 547 U.S. 715 (2006).  In subsequent years, the Environmental Protection Agency (EPA) attempted to exploit that lack of clarity by expanding the regulatory definition of a WOTUS. 

2014 proposed regulation.  In March of 2014, the EPA and the COE released a proposed rule defining “waters of the United States” (WOTUS) in a manner that would significantly expand the agencies’ regulatory jurisdiction under the CWA. Under the proposed rule, the CWA would apply to all waters which have been or ever could be used in interstate commerce as well as all interstate waters and wetlands. In addition, the proposed WOTUS rule specifies that the agencies’ jurisdiction would apply to all “tributaries” of interstate waters and all waters and wetlands “adjacent” to such interstate waters. The agencies also asserted in the proposed rule that their jurisdiction applies to all waters or wetlands with a “significant nexus” to interstate waters.

Under the proposed rule, “tributaries” is broadly defined to include natural or man-made waters, wetlands, lakes, ponds, canals, streams and ditches if they contribute flow directly or indirectly to interstate waters irrespective of whether these waterways continuously exist or have any nexus to traditional “waters of the United States.” The proposed rule defines “adjacent” expansively to include “bordering, contiguous or neighboring waters.” Thus, all waters and wetlands within the same riparian area of flood plain of interstate waters would be “adjacent” waters subject to CWA regulation. “Similarly situated” waters are evaluated as a “single landscape unit” allowing the agencies to regulate an entire watershed if one body of water within it has a “significant nexus” to interstate waters.

The proposed rule became effective as a final rule on August 28, 2015 in 37 states and became known as the “2015 WOTUS rule.”

2015 court injunction and 2016 Sixth Circuit ruling.  On October 9, 2015, the U.S. Court of Appeals for the Sixth Circuit issued a nationwide injunction barring the rule from being enforced anywhere in the U.S. Ohio, et al. v. United States Army Corps of Engineers, et al., 803 F.3d 804 (6th Cir. 2015). Over 20 lawsuits had been filed at the federal district court level. On February 22, 2016, the U.S. Court of Appeals for the Sixth Circuit ruled that it had jurisdiction to hear the challenges to the final rule, siding with the EPA and the U.S. Army Corps of Engineers that the CWA gives the circuit courts exclusive jurisdiction on the matter. The court determined that the final rule is a limitation on the manner in which the EPA regulates pollutant discharges under CWA Sec. 509(b)(1)(E), the provision addressing the issuance of denial of CWA permits (codified at 33 U.S.C. §1369(b)(1)(E)). That statute, the court reasoned, has been expansively interpreted by numerous courts and the practical application of the final rule, the court noted, is that it impacts permitting requirements. As such, the court had jurisdiction to hear the dispute. The court also cited the Sixth Circuit’s own precedent on the matter in National Cotton Council of America v. United States Environmental Protection Agency, 553 F.3d 927 (6th Cir. 2009) for supporting its holding that it had jurisdiction to decide the dispute. Murray Energy Corp. v. United States, Department of Defense, No. 15-3751, 2016 U.S. App. LEXIS 3031 (6th Cir Feb. 22, 2016). 

2017 – The U.S. Supreme Court jumps in and the “suspension rule.”  In January of 2017, the U.S. Supreme Court agreed to review the Sixth Circuit’s decision. National Association of Manufacturers v. Department of Defense, et al., 137 S. Ct. 811 (2017). About a month later, President Trump issued an Executive Order directing the EPA and the COE to revisit the Clean Water Rule and change their interpretation of waters subject to federal jurisdiction such that it only applied to waters that were truly navigable – the approach taken by Justice Scalia in Rapanos v. United States, 547 U.S. 715 (2006). The EPA and Corps later indicated they would follow the President’s suggested approach, and would push the effective date of the revised Clean Water Rule to two years after its finalization and publication in the Federal Register. In November of 2017, the EPA issued a proposed rule (the “suspension rule”) delaying the effective date of the WOTUS rule until 2020.

2018 developments.  In January of 2018, the U.S. Supreme Court ruled unanimously that jurisdiction over challenges to the WOTUS rule was in the federal district courts, reversing the Sixth Circuit’s opinion. National Association of Manufacturer’s v. Department of Defense, No. 16-299, 2018 U.S. LEXIS 761 (U.S. Sup. Ct. Jan. 22, 2018). The Court determined that the plain language of the Clean Water Act (CWA) gives authority over CWA challenges to the federal district courts, with seven exceptions none of which applied to the WOTUS rule. In particular, the WOTUS rule neither established an “effluent limitation” nor resulted in the issuance of a permit denial. While the Court noted that it would be more efficient to have the appellate courts hear challenges to the rule, the court held that the statute would have to be rewritten to achieve that result. Consequently, the Supreme Court remanded the case to the Sixth Circuit, with instructions to dismiss all of the WOTUS petitioners currently before the court. Once the case was dismissed, the nationwide stay of the WOTUS rule that the court entered in 2015 was removed, and the injunction against the implementation of the WOTUS rule entered by the North Dakota court was reinstated in those 13 states.

This “suspension” rule that was issued in November of 2017 was published in the Federal Register on February 6, 2018, and had the effect of delaying the 2015 WOTUS rule for two years. In the interim period, the controlling interpretation of WOTUS was to be the 1980s regulation that had been in place before the 2015 WOTUS rule became effective.  The “suspension rule” was challenged in court by a consortium of environmental and conservation activist groups.  They claimed that the rule violated the Administrative Procedures Act (APA) due to inadequate public notice and comment, and that the substantive implications of the suspension were not considered which was arbitrary and capricious, and improperly restored the 1980s regulation.

In June of 2018, the federal district court for the southern district of Georgia entered a preliminary injunction barring the WOTUS rule from being implemented in 11 states - Alabama, Florida, Georgia, Indiana, Kansas, Kentucky, North Carolina, South Carolina, Utah, West Virginia and Wisconsin. Georgia v. Pruitt, No. 2:15-cv-79, 2018 U.S. Dist. LEXIS 97223 (S.D. Ga. Jun. 8, 2018).  A prior decision by the North Dakota federal district court had blocked the rule from taking effect in 13 states – AK, AZ, AR, CO, ID, MO, MT, NE, NV, NM, ND, SD and WY. North Dakota v. United States Environmental Protection Agency, No. 3:15-cv-59 (D. N.D. May 24, 2016).

In July of 2018, the COE and the EPA issued a supplemental notice of proposed rulemaking. The proposed rule seeks to “clarify, supplement and seek additional comment on” the 2017 congressional attempt to repeal the Obama Administration’s 2015 WOTUS rule.  Repeal would mean that the prior regulations defining a WOTUS would become the law again. The agencies are seeking additional comments on the proposed rulemaking via the supplemental notice. The comment period was open through August 13, 2018.

In August of 2018, the court issued its opinion in the “suspension rule” case. The court agreed with the plaintiffs, determining that the content restriction on the scope of the public comments that the agencies levied during the rulemaking process violated the APA, and enjoined the suspension rule on a nationwide basis. South Carolina Conservation League, et al. v. Pruitt, No. 2-18-cv-330-DCN, 2018 U.S. Dist. LEXIS 138595 (D. S.C. Aug. 16, 2018).

In September of 2018, another federal court entered a preliminary injunction against the implementation of the Obama-era WOTUS rule.  This time the injunction applied in Texas, Louisiana and Mississippi, and applied until the court resolved the case on the issue pending before it. The court specifically noted that the public’s interest in having the Obama-era WOTUS rule preliminarily enjoined was “overwhelming.” Texas v. United States Environmental Protection Agency, et al., No. 3:15-CV-00162 (S.D. Tex. Sept. 12, 2018).

On December 11, 2018, the EPA and the COE proposed a new WOTUS definition that is narrower than the 2015 WOTUS definition, particularly with respect to streams that have water in them only for short periods of time.  Once the new proposed rule is published in the Federal Register, a 60-day comment period will be triggered.  That publication date (and comment period and subsequent hearing) has now been delayed by the partial government shutdown.

Whew!  What a trek through the WOTUS landscape!

Number 1 - I.R.C. §199A (and the proposed regulations)

In general. At the top of the list for 2018 stands the qualified business income deduction (QBID) of new I.R.C. §199A as created by the Tax Cuts and Jobs Act (TCJA).  The QBID is a 20 percent deduction for sole proprietorships and pass-through businesses on qualified business income effective for years 2018-2025.  The new deduction makes tax planning and preparation more complex - much more complex and it impacts all farm and ranch businesses in terms of how to structure the business and tax planning to take advantage of the deduction. In addition, a complex formula applies to taxpayers that are deemed “high income” under the provision.  The formula causes a re-computation of the deduction and injects additional planning concerns.  In addition, a separate computation applies to agricultural cooperatives and their patrons.  The wide application of the new provision throughout the economy and the agricultural sector cannot be understated.

Proposed regulations.  On August 8, 2018, the Treasury issued proposed regulations concerning the QBID.  While some aspects of the proposed regulations are favorable to agriculture, other aspects create additional confusion, and some issues are not addressed at all. One favorable aspect is an aggregation provision that allows a farming operation with multiple businesses (e.g., row-crop; livestock; etc.) and common ownership to aggregate the businesses for purposes of the QBID.  This is, perhaps, the most important feature of the proposed regulations with respect to agricultural businesses because it allows a higher income farming or ranching business to make an election to aggregate their common controlled entities into a single entity for purposes of the QBID. 

Similar to the benefit of aggregation, farms with multiple entities can allocate qualified W-2 wages to the appropriate entity that employs the employee under common law principles.  This avoids the taxpayer being required to start payroll in each entity.  Likewise, carryover losses that were incurred before 2018 and that are now allowed in years 2018-2025 will be ignored in calculating qualified business income (QBI) for purposes of the QBID.  This is an important issue for taxpayers that have had passive losses that have been suspended under the passive loss rules. 

Other areas of the proposed regulations need clarification in final regulations.  As for aggregation and common ownership of the entities to be aggregated, the proposed regulations limit family attribution to just the spouse, children, grandchildren and parents.  In other words, common ownership is limited to lineal ancestors and descendants.  It would be helpful if the final regulations included siblings in the relationship test.  Also, one of the big issues for farmers and ranchers operating as sole proprietorships or as a pass-through entity is whether land rental income constitutes QBI.  One of the unclear issues under the proposed regulations is whether income that a landlord receives from leasing land to an unrelated party (or parties) under a cash lease or non-material participation share lease may qualifies for the QBID.  It may not.  Clarity is needed.    

The proposed regulations appear to take the position that gain that is “treated” as capital gain is not QBI. This would appear to exclude I.R.C. §1231 gain (such as is incurred on the sale of breeding livestock) from being QBI-eligible.  Clarity is needed on this point also.  Other areas needing clarification include the treatment of losses and how to treat income from the trading in commodities.  In addition, clarification is needed with respect to various issues associated with a trusts and estates. 

Conclusion

2018 was another incredibly active year on the ag law and tax front.  2019 looks like it will continue the pace.  Stay dialed in to the blog, website, seminars, TV and radio programs to keep up with the developments as they occur.

January 10, 2019 in Environmental Law, Income Tax, Regulatory Law | Permalink | Comments (0)

Tuesday, January 8, 2019

Top Ten Agricultural Law and Tax Developments of 2018 – Numbers 6, 5 and 4

Overview

This week I continue the trek through the Top Ten ag law and tax developments of 2018 with the top six developments.  Today’s post goes through numbers six, five and four.  On Thursday I will turn attention to the remaining top three developments

Number 6 – U.S. Supreme Court Says States Can Collect Sales Tax on Remote Sellers

South Dakota v. Wayfair, Inc., 138 S. Ct. 2080 (2018)

In 2018, the U.S. Supreme Court handed South Dakota a narrow 5-4 win in its quest to collect taxes from online sales.  The Court held that the Constitution’s Commerce Clause did not bar South Dakota from statutorily requiring remote sellers without a physical presence in the state to collect and remit sales tax on goods and services that are sold to buyers for delivery inside the state of South Dakota.  In so doing, the Court overruled 50 years of Court precedent on the issue. 

Historical precedence.  In 1967, the U.S. Supreme Court determined that the Commerce Clause grants “exclusive authority [to] Congress to regulate trade between the States” in holding that Illinois could not subject a mail order seller located in Missouri to use tax where the seller had no physical presence in Illinois.  National Bellas Hess, Inc. v. Illinois Department of Revenue, 386 U.S. 753 (1967).  In holding the law unconstitutional, the Court reasoned that subjecting the seller’s interstate business to local “variations in rates of tax…and record-keeping requirements” would violate the purpose of the Commerce Clause “to ensure a national economy free from…unjustifiable local entanglements.” 

Twenty-five years later, the Court reaffirmed the limitations of the Commerce Clause on state regulatory authority in Quill Corporation v. North Dakota, 504, U.S. 298 (1992).  In Quill, the Court held that a mail order house with no physical presence in North Dakota was not subject to North Dakota use tax for “property purchased for storage, use, or consumption within the State.”  The Court followed closely its holding in National Bellas Hess, Inc. because doing so “encourage[d] settled expectations and …foster[ed] investment by businesses and individuals.”  As applied to internet sales, Quill (which predated the internet) does not exempt all internet sales from state sales taxes – just sales by sellers who don’t have a physical presence in a particular state.  National retailers have a presence in many states.

More recently, the Court examined a Colorado “tattletale” law that required out-of-state sellers with no physical presence in the state “to notify…customers of their use tax liability and to report” sales information back to Colorado.  Direct Marketing Association v. Brohl, 135 S. Ct. 1124 (2013).  The trial court enjoined enforcement of the law on Commerce Clause grounds.  On appeal, the Tenth Circuit held that it couldn’t hear the challenge to the law because the Tax Injunction Act (28 U.S.C. §1341) divested it of jurisdiction and the matter belonged in state court and, ultimately, the U.S. Supreme Court.  The Tenth Circuit remanded the case for dismissal of the Commerce Clause claims and dissolution of the permanent injunction.  The U.S. Supreme Court reversed and remanded the decision of the Tenth Circuit on the jurisdiction issue and, on remand, the Tenth Circuit, invalidated the Colorado law on Commerce Clause grounds.  Direct Marketing Association v. Brohl, 814 F.3d 1129 (10th Cir. 2016). 

South Dakota Legislation.  S.B. 106 was introduced in the 2016 South Dakota legislative session.  It requires the collection of sales taxes from certain remote sellers – those with “gross revenue” from sales in South Dakota of over $100,000 per calendar year or with 200 or more “separate transactions” in the state within the same timeframe.  After S.B. 106 was signed into law, the state Department of Revenue soon thereafter began issuing notices to sellers that it thought were in violation of the law.  Several out-of-state sellers that received notices did not register for sale tax licenses as the law required, and the state took legal action against them.  The result was that the South Dakota Supreme Court invalidated S.B. 106 on Commerce Clause grounds based on the U.S. Supreme Court precedent referenced above.  The U.S. Supreme Court agreed to hear the case.

U.S. Supreme Court decision.  Article I, Section 8 of the U.S. Constitution says that, “The Congress shall have the power...to regulate commerce…among the several states…”.  That was the key point of the Court’s 1967 Bellas Hess, Inc. decision.  As noted above, in that case the Court stated that the Commerce Clause grants “exclusive authority [to] Congress to regulate trade between the States.”  Apparently, that is not the case anymore, at least according to the majority in Wayfair – Justices Kennedy, Thomas, Ginsburg, Alito and Gorsuch.  Under the new interpretation of the Commerce Clause, states can impose sale tax obligations on businesses that have no physical presence in the state.  But is that completely true?  Can the Court’s opinion be construed as giving the states a “blank check” to tax out-of-state businesses?  Maybe not.

In Complete Auto Transit, Inc. v. Brady, 430 U.S. 274 (1977), the Court ruled that a state tax would be upheld if it applied to an activity having a substantial nexus with the state; was fairly apportioned; did not discriminate against interstate commerce; and, was fairly related to the services that the state provided.  Later, in the Quill case, the Court determined that a physical presence in the taxing jurisdiction was what satisfied the Brady “substantial nexus” requirement. 

In Wayfair, the Court determined that a “substantial nexus” could be present without the party subjected to tax having a physical presence in the taxing jurisdiction.  But, the key point is that the “substantial nexus” test of Brady remains.  Likewise, the other three requirements of Brady remain – fair apportionment; no discrimination against interstate commerce, and; fairly related to services that the state provides.  In other words, taxing a business without a physical presence in the state cannot unduly burden interstate commerce.  The Wayfair majority determined that the South Dakota law satisfied these tests because of the way it was structured – limited application (based on transactions or dollars of sales); not retroactive; the state was a member of the Streamlined Sales and Use Tax Agreement; the sellers at issue were national businesses with a large online presence; and South Dakota provided tax software to ease the administrative burden. 

Implications.  Presently, 23 states are “full members” of the Streamlined Sales and Use Tax Agreement.  For those states, the Wayfair majority seemed to believe that had the effect of minimizing the impact on interstate commerce.  Also, it would appear that any state legislation would have to have exceptions for small businesses with low volume transactions and sales revenue.  That’s an important point for many rural businesses that are selling online.  Whether a series LLC (in some states such as Iowa) or subsidiaries of a business could be created, each with sales below the applicable threshold, remains to be seen.

Post Wayfair, where will the line be drawn?  Wayfair involved state sales tax.  Will states attempt to go after a portion of business income of the out-of-state business via income tax?  That seems plausible.  However, the Interstate Income Act of 1959 (15 U.S.C. §381-384), requires that a business (or individual) have some sort of connection with a state before its income can be taxed (at least with respect to the solicitation of orders for tangible personal property).  Is that legislation now unconstitutional too? Or, is there a distinction remaining between taxing receipts as opposed to income?  Only time will tell.

Number 5 - Discharges of “Pollutants” To Groundwater

Hawai’i Wildlife Fund v. Cty. of Maui, 881 F.3d 754 (9th Cir. 2018); Upstate Forever, et al. v. Kinder Morgan Energy Partners, LP, et al., 887 F.3d 637 (4th Cir. 2018); Tennessee Clean Water Network v. Tennessee Valley Authority, 905 F.3d 436 (6th Cir. 2018), 

Background.  2018 saw a great deal of litigation on the issue of whether the discharge of a “pollutant” into groundwater requires a discharge permit under the Clean Water Act (CWA). Often, the courts have deferred to the EPA position that a point source discharge of a pollutant to groundwater that is hydrologically connected to a “Water of the United States” (WOTUS) is subject to the CWA.  However, some courts take the position that a discharge, to be subject to the CWA, must be directed from a point source to a WOTUS.  It’s a big issue for agriculture, particularly irrigation crop agriculture. 

Ninth Circuit opinion.  Early in the year, the U.S. Court of Appeals for the Ninth Circuit said that at least some discharges into groundwater are a CWA-covered event.  In the case, the defendant owned and operated four wells at the Lahaina Wastewater Reclamation Facility (LWRF), which is the principal municipal wastewater treatment plant for a city. Although constructed initially to serve as a backup disposal method for water reclamation, the wells have since become the defendant’s primary means of effluent disposal into groundwater and, ultimately, the Pacific Ocean. The LWRF receives approximately 4 million gallons of sewage per day from a collection system serving approximately 40,000 people. That sewage is treated at LWRF and then either sold to customers for irrigation purposes or injected into the wells for disposal. The defendant injects approximately 3 to 5 million gallons of treated wastewater per day into the groundwater via its wells. The defendant conceded, and its expert, confirmed that wastewater injected into wells 1 and 2 enters the Pacific Ocean. In addition, in June 2013 the EPA, the Hawaii Department of Health, the U.S. Army Engineer Research and Development Center, and researchers from the University of Hawaii conducted a study on wells 2, 3 and 4. The study involved placing tracer dye into Wells 2, 3, and 4, and monitoring the submarine seeps off Kahekili Beach to see if and when the dye would appear in the Pacific Ocean. This study, known as the Tracer Dye Study, found that 64% of the treated wastewater from wells 3 and 4 discharged into the ocean.

The plaintiff sued, claiming that the defendant was in violation of the Clean Water Act (CWA) by discharging pollutants into navigable waters of the United States without a CWA National Pollution Discharge Elimination System (NPDES) permit. The trial court agreed, holding that an NPDES permit was required for effluent discharges into navigable waters via groundwater.

On appeal, the appellate court held that the wells were point sources that could be regulated through CWA permits despite the defendant’s claim that an NPDES permit was not required because the wells discharged only indirectly into the Pacific Ocean via groundwater. Specifically, the appellate court held that “a point source discharge to groundwater of “more than [a] de minimis” amount of pollutants that is “fairly traceable from the point source . . . such that the discharge is the functional equivalent of a discharge into a navigable water” is regulated under the CWA.” The appellate court reached this conclusion by citing cases from other jurisdictions that determed that an indirect discharge from a point source into a navigable water requires an NPDES discharge permit. The defendant also claimed its effluent injections are not discharges into navigable waters, but rather were disposals of pollutants into wells, and that the CWA categorically excludes well disposals from the permitting requirements. However, the appellate court held that the CWA does not categorically exempt all well disposals from the NPDES requirements because doing so would undermine the integrity of the CWA’s provisions. Lastly, the plaintiff claimed that it did not have fair notice because the state agency tasked with administering the NPDES permit program maintained that an NPDES permit was unnecessary for the wells. However, the court held that the agency was actually still in the process of determining if an NPDES permit was applicable. Thus, the court found the lack of solidification of the agency’s position on the issue did not affirmatively demonstrate that it believed the permit was unnecessary as the defendant claimed. Furthermore, the court held that a reasonable person would have understood the CWA as prohibiting the discharges, thus the defendant’s due process rights were not violated.

EPA action.  After the Ninth Circuit issued its opinion, the EPA, on February 20, 2018, requested comment on whether pollutant discharges from point sources that reach jurisdictional surface waters via groundwater may be subject to Clean Water Act (“CWA”) regulation. Specifically, EPA seeks comment on whether EPA should consider clarification or revision of previous EPA statements regarding the Agency’s mandate to regulate discharges to surface waters via groundwater under the CWA. A number of courts have taken the view that Congress intended the CWA to regulate the release of pollutants that reach “waters of the United States” regardless of whether those pollutants were first discharged into groundwater. However, other courts, have taken the view that neither the CWA nor the EPA’s definition of waters of the United States asserts authority over ground waters, based solely on a hydrological connection with surface waters. EPA has not stated that CWA permits are required for pollutant discharges to groundwater in all cases. Rather, EPA’s position has been that pollutants discharged from point sources that reach jurisdictional surface waters via groundwater or other subsurface flow that has a direct hydrologic connection to the jurisdictional water may be subject to CWA permitting requirements. As part of its request, EPA sought comments on whether it should review and potentially revise its previous positions. In particular, the EPA sought comment on whether it is consistent with the CWA to require a CWA permit for indirect discharges into jurisdictional surface waters via groundwater. The EPA also seeks comment on whether some or all of such discharges are addressed adequately through other federal authorities, existing state statutory or regulatory programs or through other existing federal regulations and permit programs.

Fourth Circuit opinion.  Later in 2018, the U.S. Court of Appeals for the Fourth Circuit largely followed the Ninth Circuit’s approach in a case involving somewhat similar facts.  The court held that an ongoing addition of pollutants to navigable waters was sufficient for CWA citizen -suit cases.  The plaintiffs, a consortium of environmental and conservation groups, brought a citizen suit under the Clean Water Act (CWA) claiming that the defendant violated the CWA by discharging “pollutants” into the navigable waters of the United States without a required discharge permit via an underground ruptured gasoline pipeline owned by the defendant’s subsidiary. The plaintiff claimed that a discharge permit was needed because the CWA defines “point source pollutant” (which requires a discharge permit) as “any discernible, confined and discrete conveyance, included but not limited to any…well…from which pollutants are or may be discharged.” The trial court dismissed the plaintiffs’ claim.

On appeal, the appellate court held that the court had subject matter jurisdiction under the CWA’s citizen suit provision because the provision covered the discharge of “pollutants that derive from a ‘point source’ and continue to be ‘added’ to navigable waters.” Thus, even though the pipeline was no longer releasing gasoline, it continues to be passing through the earth via groundwater and continued to be discharged into regulable surface waters. This finding was contrary to the trial court’s determination that the court lacked jurisdiction because the pipeline had been repaired and because the pollutants had first passed through groundwater. As such, the appellate court determined that, in accord with the Second and Ninth Circuits, that a pollutant can first move through groundwater before reaching navigable waters and still constitute a “discharge of a pollutant” under the CWA that requires a federal discharge permit. The discharge need not be channeled by a point source until reaching navigable waters that are subject to the CWA. The appellate court did, however, point out that a discharge into groundwater does not always mean that a CWA discharge permit is required. A permit in such situations is only required if there is a direct hydrological connection between groundwater and navigable waters. In the present case, however, the appellate court noted that the pipeline rupture occurred within 1,000 feet of the navigable waters. The court noted that the defendant had not established any independent or contributing cause of pollution. 

Sixth Circuit opinion.  After the Ninth Circuit and Fourth Circuit decisions, the U.S. Court of Appeals for the Sixth Circuit issued another opinion in 2018 on the groundwater/CWA issue.  The Sixth Circuit, in concluded that groundwater is not a point source of pollution under the CWA.  The defendant in the case was a utility that burns coal to produce energy.  It also produced coal ash as a byproduct. The coal ash was discharged into man-made ponds. The plaintiffs, environmental activist groups, claimed that the chemicals from the coal ash in the ponds leaked into surrounding groundwater where it was then carried to a nearby lake that was subject to regulation under the Clean Water Act (CWA). The plaintiffs claimed that the contamination of the lake without a discharge permit violated the CWA and the Resource Conservation and Recovery Act (RCRA).

The trial court had dismissed the RCRA claim, but the appellate court reversed that determination and remanded the case on that issue. On the CWA claim, the trial court ruled as a matter of law that the CWA applies to discharges of pollutants from a point source through hydrologically connected groundwater to navigable waters where the connection is "direct, immediate, and can generally be traced." The trial court held that the defendant’s facility was a point source because it "channel[s] the flow of pollutants . . . by forming a discrete, unlined concentration of coal ash," and that the Complex is also a point source because it is "a series of discernible, confined, and discrete ponds that receive wastewater, treat that wastewater, and ultimately convey it to the Cumberland River." The trial court also determined that the defendant’s facility and the ponds were hydrologically connected to the Cumberland River by groundwater. As for the defendant’s facility, the trial court held that "[f]aced with an impoundment that has leaked in the past and no evidence of any reason that it would have stopped leaking, the Court has no choice but to conclude that the [defendant’s facility] has continued to and will continue to leak coal ash waste into the Cumberland River, through rainwater vertically penetrating the Site, groundwater laterally penetrating the Site, or both." The trial court determined that the physical properties of the terrain made the area “prone to the continued development of ever newer sinkholes or other karst features." Thus, based on the contaminants flowing from the ponds, the court found defendant to be in violation of the CWA. The trial court also determined that the leakage was in violation of the defendant “removed-substances” and “sanitary-sewer” overflow provisions. The trial court ordered the defendant to "fully excavate" the coal ash in the ponds (13.8 million cubic yards in total) and relocate it to a lined facility.

On further review, the appellate court reversed. The appellate court held that the CWA does not apply to point source pollution that reaches surface water by means of groundwater movement. The appellate court rejected the plaintiffs’ assertion that mere groundwater is equivalent to a discernable point source through which pollutants travel to a CWA-regulated body of water. The appellate court noted that, to constitute a “conveyance” of groundwater governed by the CWA, the conveyance must be discernible, confined and discrete. While groundwater may constitute a conveyance, the appellate court reasoned that it is neither discernible, confined, nor discrete. Rather, the court noted that groundwater is a “diffuse” medium that “travels in all directions, guided only by the general pull of gravity.” In addition, the appellate court noted that the CWA regulates only “the discharge of pollutants ‘to navigable waters from any point source.’” In so holding, the court rejected the holdings of the Ninth Circuit and the Fourth Circuit.   

That different conclusion by the Sixth Circuit could prove to be very important for irrigation crop agriculture.  It may also mean that the U.S. Supreme Court could be asked to clear up the discrepancy. 

Number 4 - Air Emission Reporting for Livestock Operations

Fair Agricultural Reporting Method Act (Farm Act) and Subsequent Litigation

Background.  Under the Comprehensive Environmental Response, Compensation, and Liability Act (CERCLA) and the Emergency Planning and Community Right-to-Know Act (EPCRA), the federal government is to be notified when large quantities of hazardous materials are released into the environment. Once notified, the Environmental Protection Agency (EPA) has discretion to take remedial actions or order further monitoring or investigation of the situation. In 2008, the EPA issued a final regulation exempting farms from the reporting/notification requirement for air releases from animal waste on the basis that a federal response would most often be impractical and unlikely. However, the EPA retained the reporting/notification requirement for Confined Animal Feeding Operations (CAFOs) under EPCRAs public disclosure rule.

Various environmental groups sued, challenging the exemption on the basis that the EPA acted outside of its delegated authority to create the exemption. On the other hand, agricultural groups claimed that the retained reporting requirement for CAFOs was also impermissible. The environmental groups claimed that emissions of ammonia and hydrogen sulfide (both hazardous substances under CERCLA) should be reported as part of furthering the overall regulatory objective. The court noted that there was no clear way to best measure the release of ammonia and hydrogen sulfide, but determined that continuous releases are subject to annual notice requirements. The court held that the EPA’s final regulation should be vacated as an unreasonable interpretation of the de minimis exception in the statute. As such, the challenge brought by the agriculture groups to the CAFO carve out was mooted and dismissed. Waterkeeper Alliance, et al. v. Environmental Protection Agency, 853 F.3d 527 (D.C. Cir. 2017).

The court’s order potentially subjected almost 50,000 farms to the additional reporting requirement. As such, the court delayed enforcement of its ruling by issuing multiple stays, giving the EPA additional time to write a new rule. However, on March 23, 2018, President Trump signed into law the Consolidated Appropriations Act of 2018, H.R. 1625. Division S, Title XI, Section 1102 of that law, entitled the Fair Agricultural Reporting Method Act (FARM Act), modifies 42 U.S.C. §9603 to include the EPA exemption for farms that have animal waste air releases. Specifically, 42 U.S.C. §9603(e) is modified to specify that “air emissions from animal waste (including decomposing animal waste) at a farm” are exempt from the CERCLA Sec. 103 notice and reporting requirements. “Animal waste” is defined to mean “feces, urine, or other excrement, digestive emission, urea, or similar substances emitted by animals (including any form of livestock, poultry, or fish). The term animal waste “includes animal waste that is mixed or commingled with bedding, compost, feed, soil or any other material typically found with such waste.” A “farm” is defined as a site or area (including associated structures) that is used for “the production of a crop; or the raising or selling of animals (including any form of livestock, poultry or fish); and under normal conditions, produces during a farm year any agricultural products with a total value equal to not less than $1,000.”

2018 litigation.  Relatedly, in late 2018, various environmental groups filed suit in the Federal District Court for the District of Columbia to overturn a USDA/FSA regulation that was issued in 2016 that exempts medium-sized (as redefined) CAFOs from environmental review under the National Environmental Policy Act (NEPA) before receiving FSA loans or loan guarantees. The groups claim that proper procedures were not followed when the rule was developed, and seek to have the rule rescinded and reissued after a determination of the potential impacts of the exemption is made with the reissued rule made subject to a public comment period.

Before the regulation was issued in 2016, the FSA performed Environmental Impact Statement (EIS) reviews to assess the impact of a government loan or loan guarantee to a medium-sized CAFO – defined as a facility holding 350 dairy cows, 500 feedlot cattle, 1250 hogs, 27,500 turkeys, and 50,000 chickens.  For those facilities meeting the definition of a medium-sized CAFO, the FSA would undertake an EIS before loans or loan guarantees were approved. The results of the EIS were provided to the public before the USDA/FSA dispersed funds.  The EIS process could take many months.  Under the 2016 regulation, an EIS is not required unless a particular farm/facility has more than 699 dairy cows, 999 fat cattle, 2,499 hogs, 54,999 turkeys, and 124,999 chickens. 

Conclusion

Next time I will go through the biggest three developments in ag law and tax.  What do you think they might be?

January 8, 2019 in Environmental Law, Income Tax, Regulatory Law | Permalink | Comments (0)

Friday, January 4, 2019

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

Overview

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. 

Conclusion

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

January 4, 2019 in Environmental Law | Permalink | Comments (0)

Wednesday, January 2, 2019

Top 10 Developments in Ag Law and Tax for 2018 – Numbers 10 and 9

Overview

In today’s post I continue the series of the biggest developments in agricultural law and taxation for 2018.  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 Tenth and Ninth most important developments of 2018.

Number 10 - Management Activities and the Passive Loss Rules

Robison v. Comr., T.C. Memo. 2018-88

In recent years, the IRS has shown an increased focus on business activities that it believes are being engaged in without an intent to make a profit.  Absent a profit intent, the “hobby loss” rules apply and limit deductions to the amount of income from the activity.  But, engaging in an activity with a profit intent may not be enough to fully deduct losses from the activity.  That’s particularly the case if the taxpayer hires a paid manager to run the operation.  In that situation, the IRS may claim that the taxpayer is not materially participating in the activity under the passive loss rules.  If the IRS prevails on that argument, loss deductions are severely limited, if not eliminated.

Robison v. Comr., T.C. Memo. 2018-88 involved both the hobby loss rules and the passive loss rules.  While the petitioners’ ranching activity was deemed not to be a hobby, the court believed that the taxpayer was not materially participating in the activity.  That triggered the application of the passive loss rules.  

The petitioners deducted their losses from their ranching activity annually starting in 1999 and were audited by the IRS in 2004 and 2008.  Each of those audits concluded with an IRS determination that the petitioners were conducting a trade or business with profit intent (e.g., the activity was not a hobby).  In 2010, the petitioners shifted the ranch business activity from horses to cattle.  The cattle operation was strictly grass-fed, with the cattle grazing upper-elevation Bureau of Land Management (BLM) land during the summer months.  The petitioners negotiated the lease contracts with the BLM.  They also hired a full-time ranch manager to manage the cattle.  However, the petitioners managed the overall business of the ranch.  From 2013-2015, the losses from the ranch declined each year. 

The IRS initiated a third audit and claimed that the ranching activity was a “hobby,” and also raised the alternative argument that the petitioners failed to satisfy the material participation test of the passive loss rules.  The Tax Court determined that the ranching activity was not a hobby based on the nine factors set forth in Treas. Reg. §1.183-2.  However, the court determined that the petitioners had failed to satisfy the material participation test of the passive loss rule.  The losses were, therefore, passive and only deductible in accordance with those rules.  The court determined that only two of the seven tests for material participation were relevant – the 500-hour test (Treas. Reg. §1.469-5T(a)(1) and the facts and circumstances test (Treas. Reg. §1.469-5T(a)(7)).  As for the 500-hour test, the court took issue with the manner in which the petitioners documented their time spent on the ranching activity.  The court opined that their logs were merely estimates of time spent on ranch activities that were created in preparation for trial and didn’t substantiate their hours of involvement. 

As for the facts and circumstances test, the court determined that the petitioners could not satisfy the test because of the presence of the paid ranch manager.  The court made no distinction between the cattle grazing activity which the ranch manager was responsible for and the overall business operations for which the petitioners were responsible.  Indeed, on the material participation issue, due to the presence of the ranch manager, all of the personal actions and involvement of the petitioners on which the court based its determination of their profit motive were dismissed as “investor” hours.  Treas. Reg. §1.469-5T(b)(2)(ii)(A). 

Combining the passive loss rules with a hobby loss argument is not a new tactic for the IRS (it was recently utilized with respect to a Kansas ranch), but the Robison decision certainly indicates that it can be expected to be used more frequently. 

The result in Robison is that the losses will only be deductible to the extent of passive income from the activity.  Otherwise, the losses remain suspended until the petitioners dispose of their entire interest in the activity in a fully taxable transaction to an unrelated partyI.R.C. §469(g). 

Number 9 - Court Orders Chlorpyrifos Registrations Canceled

League of United Latin American Citizens v. Wheeler, 899 F.3d 814 (9th Cir. 2018).

In August, a federal appellate court ordered the EPA to revoke all tolerances and cancel all registrations for chlorpyrifos. League of United Latin American. Citizens v. Wheeler, 899 F.3d 814 (9th Cir. 2018).  The revocation and cancellation was to occur within 60-days of the court’s decision.  Chlorpyrifos is sold under many brand names but is most readily recognized as the primary ingredient in Lorsban insecticide (Dow AgroScience).  It targets pests such as soybean aphids and spider mites and corn rootworm. Chlorpyrifos is presently used on approximately 8 million soybean acres in the U.S. (approximately 10 percent of the entire U.S. planted soybean acreage).   The EPA has established chlorpyrifos tolerances for 80 food crops in the United States.  Those crops include fruits, nuts and vegetables.  Chlorpyrifos is the only effective option for control of borers in cherry and peach trees. It is also the only control for ants that affect citrus crops.  It is used on approximately 40,000 farms in the U.S.

Certain environmental and activist groups filed a petition in 2007 to force the Environmental Protection Agency (EPA) to revoke food tolerances for chlorpyrifos based on the activists’ concerns over its impact on drinking water and alleged neurological impacts on children. The Federal Food, Drug, and Cosmetic Act authorizes the EPA to regulate the use of pesticides on foods according to specific statutory standards, and grants the EPA a limited authority to establish tolerances for pesticides meeting statutory qualifications. The EPA is also subject to safety standards in exercising its authority to register pesticides under the Federal Insecticide, Fungicide, Rodenticide Act (FIFRA).  The EPA took no action.

In 2015, the court issued a ruling regarding a 2015 petition that required the EPA to make a decision by October 31, 2015 on whether or not it would establish food tolerances for chlorpyrifos. The EPA replied that it did not have sufficient data to make a decision and, as a result, would seek to ban chlorpyrifos. In late 2015, the EPA issued a proposed rule to revoke the tolerances. However, the EPA reversed course in 2017 and left the tolerances in place citing inconsistent scientific research findings on neurodevelopmental impacts. The EPA sought more time to make a decision which would allow continued scientific research, and sought a deadline of October of 2022 as a deadline to review the registration status.  However, the court denied the request and ordered the EPA to take action by March 31, 2017. 

In early 2017, the USDA wrote to the EPA and commented on the EPA’s plan to revoke chlorpyrifos tolerances and the EPA’s underlying risk assessment that was issued in late 2016. In its letter, the expressed grave concerns about the EPA process that led the EPA to publish three wildly different human health risk assessments for chlorpyrifos within two years. The USDA also expressed severe doubts about the validity of the scientific conclusions underpinning EPA’s latest chlorpyrifos risk assessment. Even though use of the activists’ study to derive a point of departure was criticized by the Federal Insecticide Fungicide Rodenticide Act Scientific Advisory Panel, the EPA continued to rely on the activists’ study and paired it with an inadequate dose reconstruction approach. Consequently, the USDA called on the EPA to deny the activists’ petition to revoke chlorpyrifos tolerances. According to the USDA, such a denial would allow the EPA to ensure the validity of its scientific approach as part of the ongoing registration review process, without the excessive pressure caused by arbitrary, litigation-related deadlines.

The activist groups then sought review of the EPA’s administrative review process and the court granted review. The court also vacated its earlier order that EPA take action by March 31, 2017, and instructed the EPA to revoke all tolerances and cancel all registrations of chlorpyrifos within 60 days.

The EPA, however, challenged the court’s jurisdiction on the basis that the administrative process had not been completed. The EPA claimed that §346a(h)(1) of the FFDCA did not clearly state that obtaining a 24 U.S.C. §346a(g)(2)(c) order in response to administrative objections is a jurisdictional requirement. As such the 24 U.S.C. §346(g)(2)(C) administrative process deprived the court of jurisdiction until the EPA issued a response (final determinations) to activist groups’ administrative objections under 24 U.S.C. §346a(g)(2)(C). The court held that 24 U.S.C. §346a(g)(2)(C) was not jurisdictional, but was structured as a limitation on the parties rather than the court. The court also held that this case presented “strong individual interests against requiring exhaustion and weak institutional interests in favor of it.” Accordingly, the activist groups did not need to exhaust their administrative remedies. On the merits, the court held that there was no justification for the EPA's decision in its 2017 order to maintain a tolerance for chlorpyrifos in the face of scientific evidence that its residue on food causes neurodevelopmental damage to children. The court held that the EPA was in direct contravention of the FFDCA and the FIFRA.  Apparently, none of the evidence concerning the USDA’s doubts about the validity of the EPA’s health risk assessments and conclusions was before the court.

A biting dissent argued that the appellate courts have no jurisdiction in cases such as this one until the EPA makes a final determination.

The EPA has petitioned for a rehearing with the full Ninth Circuit.  The 60-day timeframe for revocation and cancellation is suspended pending the court deciding whether to rehear the case.  If a rehearing is not granted, it is anticipated that Trump Administration will ask the U.S. Supreme Court to hear the case.  In any event, it appears that Lorsban will be available to producers in 2019 as the legal proceedings continue.

Conclusion

In Friday’s post we will continue our journey through a few more of the Top Ten ag law and tax developments of 2018.  What do you think might be coming up next in the list?

January 2, 2019 in Environmental Law, Income Tax, Regulatory Law | Permalink | Comments (0)

Monday, December 31, 2018

The "Almost Top Ten" Ag Law and Tax Developments of 2018

Overview

2018 was a big year for developments in law and tax that impact farmers, ranchers, agribusinesses and the professionals that provide professional services to them.  It was also a big year in other key areas which are important to agricultural production and the provision of food and energy to the public.  For example, carbon emissions in the U.S. fell to the lowest point since WWII while they rose in the European Union.  Poverty in the U.S. dropped to the lowest point in the past decade, and the unemployment rate became the lowest since 1969 with some sectors reporting the lowest unemployment rate ever.  The Tax Cuts and Jobs Act (TCJA) doubles the standard deduction in 2018 compared to 2017, which will result additional persons having no federal income tax liability and other taxpayers (those without a Schedule C or F business, in particular) having a simplified return.  Wages continued to rise through 2018, increasing over three percent during the third quarter of 2018.  This all bodes well for the ability of more people to buy food products and, in turn, increase demand for agricultural crop and livestock products.  That’s good  news to U.S. agriculture after another difficult year for many commodity prices.

On the worldwide front, China made trade concessions and pledged to eliminate its “Made in China 2025” program that was intended to put China in a position of dominating world economic production.  The North-Korea/South Korea relationship also appears to be improving, and during 2018 the U.S. became a net exporter of oil for the first time since WWII.  While trade issues with China remain, they did appear to improve as 2018 progressed, and the USDA issued market facilitation payments (yes, they are taxed in the year of receipt and, no, they are not deferable as is crop insurance) to producers to provide relief from commodity price drops as a result of the tariff battle. 

So, on an economic and policy front, 2019 appears to bode well for agriculture.  But, looking back on 2018, of the many ag law and tax developments of 2018, which ones were important to the ag sector but just not quite of big enough significance nationally to make the “Top Ten”?  The almost Top Ten – that’s the topic of today’s post.

The “Almost Top Ten” - No Particular Order

Syngenta litigation settles.  Of importance to many corn farmers, during 2018 the class action litigation that had been filed a few years ago against Syngenta settled.  The litigation generally related to Syngenta's commercialization of genetically-modified corn seed products known as Viptera and Duracade (containing the trait MIR 162) without approval of such corn by China, an export market. The farmer plaintiffs (corn producers), who did not use Syngenta's products, claimed that Syngenta's commercialization of its products caused the genetically-modified corn to be commingled throughout the corn supply in the United States; that China rejected imports of all corn from the United States because of the presence of MIR 162; that the rejection caused corn prices to drop in the United States; and that corn farmers were harmed by that market effect.  In April of 2018, the Kansas federal judge handling the multi-district litigation preliminarily approved a nationwide settlement of claims for farmers, grain elevators and ethanol plants.  The proposed settlement involved Syngenta paying $1.5 billion to the class.  The class included, in addition to corn farmers selling corn between September of 2013 and April of 2018, grain elevators and ethanol plants that met certain definition requirements.  Those not opting out of the class at that point are barred from filing any future claims against Syngenta arising from the presence of the MIR 162 trait in the corn supply.  Parties opting out of the class can't receive any settlement proceeds, but can still file private actions against Syngenta.  Parties remaining in the class had to file claim forms by October of 2018.   The court approved the settlement in December of 2018, and payments to the class members could begin as early as April of 2019. 

Checkoff programs.  In 2018, legal challenges to ag “checkoff” programs continued.  In 2017, a federal court in Montana enjoined the Montana Beef Checkoff.  In that case, Ranchers-Cattlemen Action Legal Fund, United Stockgrowers of America v. Perdue, No. CV-16-41-GF-BMM, 2017 U.S. Dist. LEXIS 95861 (D. Mont. Jun. 21, 2017), the plaintiff claimed that the federal law requiring funding of the Montana Beef Council (MBC) via funds from the federal beef checkoff was unconstitutional.  The Beef Checkoff imposes a $1.00/head fee at the time cattle are sold. The money generated funds promotional campaigns and research, and state beef councils can collect the funds and retain half of the collected amount with the balance going to the Cattleman’s Beef Production and Research Board (Beef Board). But, a producer can direct that all of the producer’s assessment go to the Beef Board. The plaintiff claimed that the use of the collected funds violated their First Amendment rights by forcing them to pay for “speech” with which they did not agree. The defendant (USDA) motioned to dismiss, but the Magistrate Judge denied the motion. The court determined that the plaintiffs had standing, and that the U.S. Supreme Court had held in prior cases that forcing an individual to fund a private message that they did not agree with violated the First Amendment. Any legal effect of an existing “opt-out” provision was not evaluated. The court also rejected the defendant’s claim that the case should be delayed until federal regulations with respect to the opt-out provision was finalized because the defendant was needlessly dragging its heels on developing those rules and had no timeline for finalization. The court entered a preliminary injunction barring the MBC from spending funds received from the checkoff. On further review by the federal trial court, the court adopted the magistrate judge’s decision in full. The trial court determined that the plaintiff had standing on the basis that the plaintiff would have a viable First Amendment claim if the Montana Beef Council’s advertising involves private speech, and the plaintiff did not have the ability to influence the advertising of the Montana Beef Council. The trial court rejected the defendant’s motion to dismiss for failure to state a claim on the basis that the court could not conclude, as a matter of law, that the Montana Beef Council’s advertisements qualify as government speech. The trial court also determined that the plaintiff satisfied its burden to show that a preliminary injunction would be appropriate. 

The USDA appealed the trial court’s decision, but the U.S. Court of Appeals for the Ninth Circuit affirmed the trial court in 2018.  Ranchers-Cattlemen Action Legal Fund, United Stockgrowers of America v. Perdue, 718 Fed. Appx. 541 (9th Cir. 2018).  Later in 2018, as part of the 2018 Farm Bill debate, a provision was proposed that would have changed the structure of federal ag checkoff programs.  It did not pass, but did receive forty percent favorable votes.    

GIPSA rules withdrawn.  In the fall of 2016, the USDA sent to the Office of Management and Budget (OMB) an interim final rule and two proposed regulations setting forth the agency’s interpretation of certain aspects of the Packers and Stockyards Act (PSA) involving the buying and selling of livestock and poultry. The proposals generated thousands of comments, with ag groups and producers split in their support. The proposals concern Section 202 of the PSA (7 U.S.C. §§ 192 (a) and (e)) which makes it unlawful for any packer who inspects livestock, meat products or livestock products to engage in or use any unfair, unjustly discriminatory or deceptive practice or device, or engage in any course of business or do any act for the purpose or with the effect of manipulating or controlling prices or creating a monopoly in the buying, selling or dealing any article in restraint of commerce. The “effect” language of the statute would seem to eliminate any requirement that the producer show that the packer acted with the intent to control or manipulate prices. However, the federal courts have largely interpreted the provision to require a plaintiff to show an anti-competitive effect in order to have an actionable claim. 

The interim final rule and the two proposed regulations stemmed from 2010.  In that year, the Obama administration’s USDA issued proposed regulations providing guidance on the handling of antitrust-related issues under the PSA. 75 Fed. Reg. No. 119, 75 FR 35338 (Jun. 22, 2010).  Under the proposed regulations, "likelihood of competitive injury" was defined as "a reasonable basis to believe that a competitive injury is likely to occur in the market channel or marketplace.” It included, but was not limited to, situations in which a packer, swine contractor, or live poultry dealer raises rivals' costs, improperly forecloses competition in a large share of the market through exclusive dealing, restrains competition, or represents a misuse of market power to distort competition among other packers, swine contractors, or live poultry dealers. It also includes situations “in which a packer, swine contractor, or live poultry dealer wrongfully depresses prices paid to a producer or grower below market value, or impairs a producer's or grower's ability to compete with other producers or growers or to impair a producer's or grower's ability to receive the reasonably expected full economic value from a transaction in the market channel or marketplace." According to the proposed regulations, a “competitive injury” under the PSA occurs when conduct distorts competition in the market channel or marketplace. The scope of PSA §202(a) and (b) was stated to depend on the nature and circumstances of the challenged conduct. The proposed regulations specifically noted that a finding that a challenged act or practice adversely affects or is likely to affect competition is not necessary in all cases. The proposed regulations also specified that a PSA violation could occur without a finding of harm or likely harm to competition, contrary to numerous court opinions on the issue.

On April 11, 2017, the USDA announced that it was delaying the effective date of the interim final rule for 180 days, until October 19, 2017, with the due date for public comment set at June 12, 2017.  However, on October 17, 2017, the USDA withdrew the interim rule.  The withdrawal of the interim final rule and two proposed regulations was challenged in court.  On December 21, 2018, the U.S. Court of Appeals for the Eighth Circuit denied review of the USDA decision.  In Organization for Competitive Markets v. United States Department of Agriculture, No. 17-3723, 2018 U.S. App. LEXIS 36093 (8th Cir. Dec. 21, 2018), the court noted that the USDA had declined to withdraw the rule and regulations because the proposal would have generated protracted litigation, adopted vague and ambiguous terms, and potentially bar innovation and stimulate vertical integration in the livestock industry that would disincentivize market entrants.  Those concerns, the court determined, were legitimate and substantive.  The court also rejected the plaintiff’s argument that the court had to compel agency action.  The matter, the court concluded, was not an extraordinary situation.  Thus, the USDA did not unlawfully withhold action. 

No ”clawback.”   In a notice of proposed rulemaking, the U.S Treasury Department eliminated concerns about the imposition of an increase in federal estate tax for decedents dying in the future at a time when the unified credit applicable exclusion amount is lower than its present level and some (or all) of the higher exclusion amount had been previously used. The Treasury addressed four primary questions. On the question of whether pre-2018 gifts on which gift tax was paid will absorb some or all of the 2018-2025 increase in the applicable exclusion amount (and thereby decrease the amount of the credit available for offsetting gift taxes on 2018-2025 gifts), the Treasury indicated that it does not. As such, the Treasury indicated that no regulations were necessary to address the issue. Similarly, the Treasury said that pre-2018 gift taxes will not reduce the applicable exclusion amount for estates of decedents dying in years 2018-2025.

The Treasury also stated that federal gift tax on gifts made after 2025 will not be increased by inclusion in the tax computation a tax on gifts made between 2018 and 2015 that were sheltered from tax by the increased applicable exclusion amount under the TCJA.  The Treasury concluded that this is the outcome under current law and needed no regulatory “fix.” As for gifts that are made between 2018-2025 that are sheltered by the applicable exclusion amount, the Treasury said that those amounts will not be subject to federal estate tax in estates of decedents dying in 2026 and later if the applicable exclusion amount is lower than the level it was at when the gifts were made. To accomplish this result, the Treasury will amend Treas. Reg. §20.2010-1 to allow for a basic exclusion amount at death that can be applied against the hypothetical gift tax portion of the estate tax computation that is equal to the higher of the otherwise applicable basic exclusion amount and the basic exclusion amount applied against prior gifts.

The Treasury stated that it had the authority to draft regulations governing these questions based on I.R.C. §2001(g)(2). The Treasury, in the Notice, did not address the generation-skipping tax exemption and its temporary increase under the TCJA through 2025 and whether there would be any adverse consequences from a possible small exemption post-2025. Written and electronic comments must be received by February 21, 2019. A public hearing on the proposed regulations is scheduled for March 13, 2019. IRS Notice of Proposed Rulemaking, REG-106706-18, 83 FR 59343 (Nov. 23, 2018).

Conclusion

These were significant developments in the ag law and tax arena in 2018, but just not quite big enough in terms of their impact sector-wide to make the “Top Ten” list.  Wednesday’s post this week will examine the “bottom five” of the “Top Ten” developments for 2018. 

December 31, 2018 in Bankruptcy, Business Planning, Civil Liabilities, Contracts, Cooperatives, Criminal Liabilities, Environmental Law, Estate Planning, Income Tax, Insurance, Real Property, Regulatory Law, Secured Transactions, Water Law | Permalink | Comments (0)

Friday, December 7, 2018

Can An Endangered Species Be Protected In Areas Where It Can’t Survive?

Overview

The Endangered Species Act (ESA) has the potential to restrict substantially agricultural activities because many of the protections provided for threatened and endangered species under the ESA extend to individual members of the species when they are on private land.  Many endangered species have some habitat on private land.  Current estimates are that half of the species listed as endangered or threatened have about 80 percent of their habitat on privately owned land.  

When a species is listed as endangered or threatened, the Secretary of the Interior (Secretary) must consider whether to designate critical habitat for the species.  Once a critical habitat designation is made, activities on the designated land are severely restricted.  But how is that designation made, and can a court review the decision to list an area as critical habitat?  Those are important questions for landowners, both rural and otherwise.  Those questions are also the topic of today’s post – critical habitat designations under the ESA and judicial review.

ESA Framework

The ESA establishes a regulatory framework for the protection and recovery of endangered and threatened species of plants, fish and wildlife.  16 U.S.C. § 1531 et seq.  The U.S. Fish and Wildlife Service (USFWS), within the Department of the Interior, is the lead administrative agency for most threatened or endangered species, but the National Marine Fisheries Service (NMFS), within the Department of Commerce administers the ESA for certain endangered or threatened marine or anadromous species. 

Under the ESA, an “endangered species” is a species which is in danger of extinction throughout all or a significant part of its range other than a species determined by the USFWS to constitute a pest whose protection under the provisions of the Act would present an overwhelming and overriding risk to humans.  16 U.S.C. § 1532(6).  A “threatened species” is a species which is likely to become endangered within the foreseeable future throughout all or a significant portion of its range. 16 U.S.C. § 1532(20).   The term “species” includes any subspecies of fish or wildlife or plants and any distinct population segment of any species of vertebrate fish or wildlife which interbreeds when mature. 16 U.S.C. § 1532(16).

The Listing Process.  Secretary determines when a species is to be listed as either threatened or endangered, and other federal agencies have a duty to conserve listed species by consulting with the FWS when developing their own programs.  See, e.g., Sierra Club v. Glickman, 156 F.3d 606 (5th Cir. 1998).  As of December 6, 2018, 1,661 species in the United States had been listed under the ESA, with 1,275 species listed as endangered and 386 listed as threatened. Presently, the states with the greatest number of species listed as endangered or threatened are: Hawaii, California, Florida, Alabama and Texas.

 An endangered or threatened listing is to be made on the basis of the best available scientific and commercial data without reference to possible economic or other impacts after the USFWS conducts a review of the status of the species. 16 U.S.C. § 1533(b)(1)(A) (2002); 50 C.F.R. 424.11 (20). There is, however, no statutory threshold definition or quantification of the level of data necessary to support a listing decision.  Indeed, the information supporting a listing decision need not be credible; only the “best available.”

The Secretary's decision to list a species as endangered or threatened is based upon the presence of at least one of the following factors; (1) the present or threatened destruction, modification, or curtailment of a species' habitat or range; (2) the over-utilization for commercial, sporting, scientific or educational purposes; (3) disease or predation; (4) the inadequacy of existing regulatory mechanisms; or (5) other natural or manmade factors affecting a species' continued existence.  16 U.S.C. § 1533(a)(1).  The USFWS may decline to list a species upon publishing a written finding either that listing is unwarranted or that listing is warranted, but that the USFWS lacks the resources to proceed immediately with the proposal.  16 U.S.C. § 1533(b)(3)(C)(ii).

Ever since the effective date of the 1982 amendments to the ESA, when a species is listed as endangered or threatened, the Secretary must designate critical habitat for the species. See Center for Biological Diversity v. United States Fish & Wildlife Service, 450 F.3d 930 (9th Cir. 2006).   “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.  16 U.S.C. §1532(5)(A).   However, critical habitat need not include the entire geographical range which the species could potentially occupy. 16 U.S.C. § 1532(5).  In making a critical habitat determination, the USFWS must consider economic impacts and other relevant impacts, as well as best scientific data.  See, e.g., New Mexico Cattle Growers Association v. United States Fish and Wildlife Service, 248 F.3d 1277 (10th Cir. 2001). The failure to consider the economic and social impacts of a critical habitat designation at the time of the designation can be cause to set aside the designation. Home Builders Association of Northern California, et al. v. United States Fish and Wildlife Service, 268 F. Supp. 2d 1197 (E.D. Cal. 2003). The USFWS may exclude any area from critical habitat if the benefits of the exclusion outweigh the benefits of specifying the area as critical habitat, unless the USFWS determines on the basis of best scientific and commercial data available that the failure to designate an area as critical habitat will result in the extinction of the species. 16 U.S.C. § 1533(b)(2).

Recent Case

Under the facts of Weyerhaeuser Co. v. United States Fish & Wildlife Service, No. 17-71, 2018 U.S. LEXIS 6932 (U.S. Sup. Ct. Nov. 27, 2018), the USFWS, in 2001, listed the dusky gopher frog as an endangered species after determining that its wild population had dwindled to about 100 that were found at a single pond in Mississippi.  It’s habitat had covered coastal areas of Alabama, Louisiana and Mississippi in certain open-canopy pine forests that have since been almost entirely replaced with urban development, agricultural operations and closed-forest timber farming enterprises.  Upon making the designation, the Secretary had to designate the critical habitat for the frog.  It did so in 2010.  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 USFWS then issued a report on the probable economic impact of designating the tract (and the other areas) as critical habitat. 

The plaintiff owns 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 costs could amount to over $30 million (in timber farming and development) if the USFWS barred all development on the tract.  But, according the USFWS, those potential costs 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 decision of the USFWS not to exclude the tract from the frog’s critical habitat on the basis that the USFWS had failed to adequately weigh the benefits of designating the tract against the economic impact of the designation.  The claim was that the USFWS used an unreasonable methodology for estimating economic impact and failed to consider certain categories of costs. 

The trial court upheld the designation on the basis that the tract fit the definition of “unoccupied critical habitat” which only required the USFWS to decide that the tract was 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” required a “habitability” requirement.  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).  Chief Justice Roberts wrote the Court’s opinion, and 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. 

Conclusion

The case is important to private landowners for a couple of reasons.  First, on remand the appellate court will have to redetermine the designation of the frog’s critical habitat on the basis that it first must actually be habitat for the frog.  There is a “habitability” requirement when the Secretary designates an area as “critical habitat.”  Second, the USFWS doesn’t get a free pass when designating an area as critical habitat.  That designation is subject to judicial review (as are all USFWS decisions to decline to list a species). 

December 7, 2018 in Environmental Law | Permalink | Comments (0)

Friday, November 9, 2018

Developments in Ag Law and Tax

Overview

Legal developments impacting rural landowners, producers and agribusinesses continue to occur.  The same can be said for tax developments that impact practitioners and their client base.  It’s a never-ending stream.

In today’s post, I examine just a few of the recent developments from the courts of relevance.

Debtor Can Convert Chapter 12 Case to Chapter 11 

Can a Chapter 12 bankruptcy case be converted to Chapter 11?  That was the issue in In re Cardwell, No. 17-50307-rlj12, 2018 Bankr. LEXIS 3089 (Bankr. N.D. Tex. Oct. 3, 2018).  The debtor, an elderly widowed woman, owned three tracts of farmland that she leased out for farming purposes.  The tracts served as collateral for loans taken out by her children and grandchildren. The debtor sued a bank and the spouse of a granddaughter for “improprieties on the loans and liens.” The debtor filed Chapter 12, but the bank moved to dismiss the case on the basis that the debtor was not a ‘family farmer.” The debtor then moved to convert the case to Chapter 11. The bank objected, claiming that a Chapter 12 case cannot be converted to a Chapter 11.

While the court noted that there is some authority for that proposition, the court also noted that there is no explicit statutory language that bars a Chapter 12 from being converted to a Chapter 11 and that the courts are split on the issue. Ultimately, the court concluded that 11 U.S.C. §1208(e) allowed for conversion if the proceeding was in good faith and conversion would not be inequitable or prejudicial to creditors. The court also noted that if it dismissed the debtor’s Chapter 12 case, the debtor could simply refile the matter as a Chapter 11 case. The court saw no point in requiring that procedural step as there was no explicit statutory language requiring dismissal and refiling. The court also noted that upon conversion the automatic stay would remain in place, and that the debtor would actually have a more difficult time getting her reorganization plan confirmed as part of a Chapter 11 case as compared to a Chapter 12 case. 

Federal Law Preempts Kansas Train Roadway Blockage Law

Burlington Northern Santa Fe Railway (BNSF) operates trains through the town of Bazaar in Chase County, Kansas. At issue State of Kansas v. Burlington Northern Santa Fe Railway Company, No. 118,095, 2018 Kan. App. LEXIS 63 (Kan. Ct. App. Nov. 2, 2018), were two railroad crossings where the main line and the side tracks crossed county and town roads. The side track is used to change crews or let other trains by on the main line. Early one morning, the Chase County Sheriff received a call that a train was blocking both intersections. The Sheriff arrived on scene two hours later and spoke with a BNSF employee. This employee said that he was checking the train but did not state when the train would move. The Sheriff then called BNSF three times. The train remained stopped on both crossings for approximately four hours. The Sheriff issued two citations (one for each engine) under K.S.A. 66-273 for blocking the crossings for four hours and six minutes. K.S.A. 66-273 prohibits railroad companies and corporations operating a railroad in Kansas from allowing trains to stand upon any public roadway near any incorporated or unincorporated city or town in excess of 10 minutes at any one time without leaving an opening on the roadway of at least 30 feet in width. BNSF moved to dismiss the citation, but the trial court rejected the motion.

During the trial, many citizens presented evidence that they could not get to work that day, and a service technician could not reach a home that did not have hot water and was having heating problems. BNSF presented train logs for one of the engines. These logs showed that one engine was stopped in Bazaar for only 8 minutes to change crews and was not in Bazaar at 9:54 a.m. The Sheriff later conceded that he might have been mistaken about the numbers on the engines for the citations. There were no train logs for the other engine. BNSF also stated there could be other alternatives from blocking the crossings but uncoupling the middle of the train would be time consuming and unsafe.

The trial court ruled against BNSF and entered a fine of $4,200 plus court costs. On appeal, BNSF claimed that the Interstate Commerce Commission Termination Act (ICCTA) and Federal Railroad Safety Act (FRSA) preempted Kansas law, and that the evidence presented was not sufficient to prove a violation of Kansas law. The appellate court agreed, holding that the ICCTA, by its express terms contained in 49 U.S.C. 10501(b), preempted Kansas law. While the appellate court noted that the Kansas statute served an “admirable purpose,” it was too specific in that it applied only to railroad companies rather than the public at large. Also, the statute had more than a remote or incidental effect on railway transportation. As a result, the Kansas law infringed on the Surface Transportation Board’s exclusive jurisdiction to regulate the railways in the United States. The appellate court noted that the Surface Transportation Board was created by the ICCTA and given exclusive jurisdiction over the construction, acquisition, operation, abandonment, or discontinuance of railroad tracks and facilities. In addition, the appellate court noted that the Congress expressly stated that the remedies with respect to regulation of rail transportation set forth in the ICCTA are exclusive and preempt other remedies provided under federal or state law. The appellate court did not consider BNSF’s other arguments. 

Groundwater Is Not a “Point Source” of Pollution Under the CWA

The defendant in Tennessee Clean Water Network v. Tennessee Valley Authority, No. 17-6155, 2018 U.S. App. LEXIS 27237 (6th Cir. Sept. 24, 2018), is a utility that burns coal to produce energy.  It also produces coal ash as a byproduct. The coal ash is discharged into man-made ponds. The plaintiffs, environmental activist groups, claimed that the chemicals from the coal ash in the ponds leaked into surrounding groundwater where it was then carried to a nearby lake that was subject to regulation under the Clean Water Act (CWA). The plaintiffs claimed that the contamination of the lake without a discharge permit violated the CWA and the Resource Conservation and Recovery Act (RCRA).

The trial court had dismissed the RCRA claim, but the appellate court reversed that determination and remanded the case on that issue. On the CWA claim, the trial court ruled as a matter of law that the CWA applies to discharges of pollutants from a point source through hydrologically connected groundwater to navigable waters where the connection is "direct, immediate, and can generally be traced." The trial court held that the defendant’s facility was a point source because it "channel[s] the flow of pollutants . . . by forming a discrete, unlined concentration of coal ash," and that the Complex is also a point source because it is "a series of discernible, confined, and discrete ponds that receive wastewater, treat that wastewater, and ultimately convey it to the Cumberland River." The trial court also determined that the defendant’s facility and the ponds were hydrologically connected to the Cumberland River by groundwater. As for the defendant’s facility, the trial court held that "[f]aced with an impoundment that has leaked in the past and no evidence of any reason that it would have stopped leaking, the Court has no choice but to conclude that the [defendant’s facility] has continued to and will continue to leak coal ash waste into the Cumberland River, through rainwater vertically penetrating the Site, groundwater laterally penetrating the Site, or both." The trial court determined that the physical properties of the terrain made the area “prone to the continued development of ever newer sinkholes or other karst features." Thus, based on the contaminants flowing from the ponds, the court found defendant to be in violation of the CWA. The trial court also determined that the leakage was in violation of the defendant “removed-substances” and “sanitary-sewer” overflow provisions. The trial court ordered the defendant to "fully excavate" the coal ash in the ponds (13.8 million cubic yards in total) and relocate it to a lined facility.

On further review, the appellate court reversed. The appellate court held that the CWA does not apply to point source pollution that reaches surface water by means of groundwater movement. The appellate court rejected the plaintiffs’ assertion that mere groundwater is equivalent to a discernable point source through which pollutants travel to a CWA-regulated body of water. The appellate court noted that, to constitute a “conveyance” of groundwater governed by the CWA, the conveyance must be discernible, confined and discrete. While groundwater may constitute a conveyance, the appellate court reasoned that it is neither discernible, confined, nor discrete. Rather, the court noted that groundwater is a “diffuse” medium that “travels in all directions, guided only by the general pull of gravity.” In addition, the appellate court noted that the CWA regulates only “the discharge of pollutants ‘to navigable waters from any point source.’” In so holding, the court rejected the holdings in Hawai’i Wildlife Fund v. County of Maui, 881 F.3d 754 (9th Cir. 2018) and Upstate Forever, et al. v. Kinder Morgan Energy Partners, LP, et al., 887 F.3d 637 (4th Cir. 2018). 

Cash Gifts to Pastor Constituted Taxable Income

In Felton v. Comr., T.C. Memo. 2018-168, the petitioner was the pastor of a church and the head of various church related ministries in the U.S. and abroad, got behind on his tax filings and IRS audited years 2008 and 2009. While most issues were resolved, the IRS took the position that cash and checks that parishioners put in blue envelopes were taxable income to the petitioner rather than gifts. The amounts the petitioner received in blue envelopes were $258,001 in 2008 and $234,826 in 2009. There was no question that the church was run in a businesslike manner. While the church board served in a mere advisory role, the petitioner did follow church bylaws and never overrode the board on business matters. As for contributions to the church, donated funds were allocated based on an envelope system with white envelopes used for tithes and offerings for the church. The white envelopes also included a line marked “pastoral” which would be given directly to the petitioner. The amounts in white envelopes were tracked and annual giving statements provided for those amounts.

The petitioner reported as income the amounts provided in white envelopes that were designated as “pastoral.” Amount in gold envelopes were used for special programs and retreats, and were included in a donor’s annual giving statement. Amounts in blue envelopes (which were given out when asked for) were treated as pastoral gifts and the amounts given in blue envelopes were not included in the donor’s annual giving statement and the donor did not receive any tax deduction for the gifted amounts. Likewise, the petitioner did not include the amounts given in blue envelopes in income. The IRS took the position that the amounts given by means of the blue envelopes were taxable income to the petitioner. The Tax Court agreed, noting that the petitioner was not retiring or disabled. The court also noted that the petitioner received a non-taxable parsonage allowance of $78,000 and received only $40,000 in white envelope donations. The court also upheld the imposition of a penalty because the petitioner, who self-prepared his returns, made no attempt to determine the proper tax reporting of the donations. 

Conclusion

The developments keep rolling in.  There will be more to write about in a subsequent post.

November 9, 2018 in Bankruptcy, Civil Liabilities, Environmental Law, Income Tax | Permalink | Comments (0)

Wednesday, November 7, 2018

“Waters of the United States” Means “Frozen Soil”?

Overview

Section 404 of the Clean Water Act (CWA) makes illegal the discharging of dredge or fill material into the “navigable waters of the United States” (WOTUS) without obtaining a permit from the Secretary of the Army acting through the Corps of Engineers (COE). 33 U.S.C. §§1311(a); 1362(6),(12).  The definition of what a WOTUS has been confusing and controversial in recent years.  How is a wetland that could be a WOTUS delineated?  What force do definitions contained in a COE manual have?  What about supplements?   

How the government defines a “WOTUS” – that’s the focus of today’s post.

Regulatory Definitions

The regulatory definition of a “wetland” has changed over the years.  In its 1987 Manual for delineating wetlands, before the COE may assert jurisdiction over property, it must find 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 Corps 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.”   The 2007 Supplement was updated in 2008.

Alaska Case

The 1987 Manual and the budget bills and COE region-specific Supplements were the issue of a recent case.  In Tin Cup, LLC v. United States Army Corps of Engineers, No. 17-35889, 2018 U.S. App. LEXIS 27085 (9th Cir. Sept. 21, 2018), 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 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.

One of the appellate judges, while concurring with the decision that the lower court did not err in granting summary judgment to the COE, disagreed that the 1993 Budget Act didn’t apply beyond the 1993 fiscal year.  This judge noted that the Congress, in the 1993 Budget Act, specifically directed the COE to continue to use the 1987 Manual “until” it adopted a final wetlands delineation manual.  According to this judge, that was a sufficient Congressional directive of futurity that made the directive applicable beyond the Federal Government’s 1993 fiscal year.

Conclusion

The definition of a “wetland” and “WOTUS” is confusing and controversial.  The Ninth Circuit’s holding that the COE can conclude that frozen soil is a navigable water will not diminish that controversy.  The issue of the application of congressional budget act provisions is also one that there is not agreement upon within the federal appellate courts.  Perhaps the U.S. Supreme Court will hear the case. 

As for me, I am going to read my copy of Alice in Wonderland.  It might make more sense than concluding that gravel is pollution and frozen dirt is water and when the Congress says not to do something, you can.

November 7, 2018 in Environmental Law, Regulatory Law | Permalink | Comments (0)

Monday, October 22, 2018

Is Groundwater A “Point Source” Pollutant?

Overview

The purpose of the Clean Water Act (CWA) is to eliminate the discharge of pollutants into the nation's waters without a permit.  The CWA recognizes two sources of pollution. Point source and nonpoint source pollution.  Under the CWA, point source pollution is the concern of the federal government and it is the type of pollution that comes from a clearly discernable discharge point, such as a pipe, a ditch, or a concentrated animal feeding operation.  Nonpoint source pollution, while not specifically defined under the CWA, is pollution that comes from a diffused point of discharge, such as fertilizer runoff from an open field.  Control of nonpoint source pollution is to be handled by the states through enforcement of state water quality standards and area-wide waste management plans.

What if pollution enters CWA-regulated waters (“Waters of the United States”) through groundwater?  Is groundwater a point source of pollution?  If so, that has serious implications for agriculture.  A recent federal appeals court opinion brings good news for agriculture.  It also creates a split amongst the courts that the U.S. Supreme Court may be asked to resolve.

Groundwater and point-source pollution – that’s the topic of today’s post.

The CWA and “Point Source” Pollution

No one may discharge a “pollutant” from a point source into the “navigable waters of the United States” without a permit from the EPA. An NPDES permit is not required unless there is an “addition” of a pollutant to regulable waters. See e.g., Friends of the Everglades, et al. v. South Florida Water Management District, et al., 570 F.3d 1210 (11th Cir. 2009) reh’g., den., 605 F.3d 962 (11th Cir. 2010), cert. den., 131 S. Ct. 643 (2010).  

The definition of “pollutant” has been construed broadly to include the tillage of soil which causes the soil to be “redeposited” into delineated wetlands constitutes the discharge of a “pollutant” into the navigable waters of the United States requiring an NPDES permit.  See, Duarte Nursery, Inc.  v. United States Army Corps of Engineers , No. 2:13-cv-02095-KJM-AC, 2016 U.S. Dist. LEXIS 76037 (E.D. Cal. Jun. 10, 2016).  The court also determined that farming equipment, a tractor and ripper attachment constituted a point source pollutant under the CWA.  The discharge was not exempt under the “established farming operation” exemption of 33 U.S.C. §1344(f)(1) because farming activities on the tract had not been established and on-going but had been grazed since 1988.  As a result, the planting of wheat could not be considered a continuation of established and on-going farming activities.  Id. 

Under 1977 amendments to the CWA, irrigation return flows are not considered point sources. See, e.g., Pacific Coast Federation of Fishermen’s Associations, et al. v. Glaser, et al., No. CIV S-2:11-2980-KJM-CKD, 2013 U.S. Dist. LEXIS 132240 (E.D. Cal. Sept. 16, 2013)In Pacific Coast, the plaintiff directly challenged the exemption of tile drainage systems from CWA regulation via “return flows from irrigated water” on the basis that groundwater discharged from drainage tile systems is separate from any irrigation occurring on farms and is, therefore, not exempt.  In dismissing the case, the court also noted that “return flows” narrows the type of water permissibly discharged from irrigated agriculture and covers discharges from irrigated agriculture that don’t contain additional discharges unrelated to crop production. 

What About Groundwater?

The NPDES system only applies to discharges of pollutants into surface water.    Discharges of pollutants into groundwater are not subject to the NPDES permit requirement even if the groundwater is hydrologically connected to surface water.  Indeed, the legislative history of the CWA demonstrates that the Congress, did not intend that the CWA regulate hydrologically-connected groundwater.  Groundwater regulation was to be left to the states as nonpoint source pollution.  See, e.g., Umatilla Water Quality Protective Association v. Smith Frozen Foods, 962 F. Supp. 1312 (D. Or. 1997)

While it seems clear that the CWA was never intended to apply to pollution discharges into groundwater that eventually finds its way into a WOTUS, in recent years a split has developed between a few of the federal circuit courts of appeal.  For example, in Upstate Forever, et al. v. Kinder Morgan Energy Partners, LP, et al., 887 F.3d 637 (4th Cir. 2018), the plaintiffs, a consortium of environmental and conservation groups, brought a citizen suit under the Clean Water Act (CWA) claiming that the defendant violated the CWA by discharging “pollutants” into the navigable waters of the United States without a required discharge permit via an underground ruptured gasoline pipeline owned by the defendant’s subsidiary. The plaintiff claimed that a discharge permit was needed because the CWA defines “point source pollutant” (which requires a discharge permit) as “any discernible, confined and discrete conveyance, included but not limited to any…well…from which pollutants are or may be discharged.”

The trial court dismissed the plaintiffs’ claim, but the appellate court held that a pollutant can first move through groundwater before reaching navigable waters and still constitute a “discharge of a pollutant” under the CWA that requires a federal discharge permit. The discharge need not be channeled by a point source until reaching navigable waters that are subject to the CWA. The appellate court did, however, point out that a discharge into groundwater does not always mean that a CWA discharge permit is required. A permit in such situations is only required if there is a direct hydrological connection between groundwater and navigable waters. In the present case, however, the appellate court noted that the pipeline rupture occurred within 1,000 feet of the navigable waters. The court noted that the defendant had not established any independent or contributing cause of pollution. 

Similarly, in Hawai’i Wildlife Fund v. Cty. of Maui, 881 F.3d 754 (9th Cir. 2018), the defendant owned and operated four wells at the Lahaina Wastewater Reclamation Facility (LWRF), which is the principal municipal wastewater treatment plant for a city. Although constructed initially to serve as a backup disposal method for water reclamation, the wells became the defendant’s primary means of effluent disposal into groundwater and, ultimately, the Pacific Ocean. The LWRF received approximately 4 million gallons of sewage per day from a collection system serving approximately 40,000 people. That sewage was treated at LWRF and then either sold to customers for irrigation purposes or injected into the wells for disposal. The defendant injected approximately 3 to 5 million gallons of treated wastewater per day into the groundwater via its wells. The defendant conceded, and its expert, confirmed that wastewater injected into wells 1 and 2 enters the Pacific Ocean. In addition, in June 2013 the EPA, the Hawaii Department of Health, the U.S. Army Engineer Research and Development Center, and researchers from the University of Hawaii conducted a study on wells 2, 3 and 4. The study involved placing tracer dye into Wells 2, 3, and 4, and monitoring the submarine seeps off Kahekili Beach to see if and when the dye would appear in the Pacific Ocean. This study, known as the Tracer Dye Study, found that 64% of the treated wastewater from wells 3 and 4 discharged into the ocean.

The plaintiff sued, claiming that the defendant was in violation CWA by discharging pollutants into a WOTUS without a permit.  The trial court agreed, holding that a permit was required for effluent discharges into navigable waters via groundwater. On appeal, the appellate court held that the wells were point sources that could be regulated through CWA permits despite the defendant’s claim that a permit was not required because the wells discharged only indirectly into the Pacific Ocean via groundwater. Specifically, the appellate court held that “a point source discharge to groundwater of “more than [a] de minimis” amount of pollutants that is “fairly traceable from the point source . . . such that the discharge is the functional equivalent of a discharge into a navigable water” is regulated under the CWA.”

A recent decision by the U.S. Circuit Court of Appeals for the Sixth Circuit, however, reached a different decision.  In Tennessee Clean Water Network v. Tennessee Valley Authority, No. 17-6155, 2018 U.S. App. LEXIS 27237 (6th Cir. Sept. 24, 2018).  The defendant, a utility that burns coal to produce energy, produces coal ash as a byproduct. The coal ash is discharged into man-made ponds. The plaintiffs, environmental activist groups, claimed that the chemicals from the coal ash in the ponds leaked into surrounding groundwater where it was then carried to a nearby lake that was subject to regulation under the Clean Water Act (CWA). The plaintiffs claimed that the contamination of the lake without a discharge permit violated the CWA and the Resource Conservation and Recovery Act (RCRA). The trial court had dismissed the RCRA claim but the appellate court reversed that determination and remanded the case on that issue.

On the CWA claim, the trial court ruled as a matter of law that the CWA applies to discharges of pollutants from a point source through hydrologically connected groundwater to navigable waters where the connection is "direct, immediate, and can generally be traced." The trial court held that the defendant’s facility was a point source because it "channel[s] the flow of pollutants . . . by forming a discrete, unlined concentration of coal ash," and that the Complex is also a point source because it is "a series of discernible, confined, and discrete ponds that receive wastewater, treat that wastewater, and ultimately convey it to the Cumberland River." The trial court also determined that the defendant’s facility and the ponds were hydrologically connected to the Cumberland River by groundwater. As for the defendant’s facility, the court held that "[f]aced with an impoundment that has leaked in the past and no evidence of any reason that it would have stopped leaking, the Court has no choice but to conclude that the [defendant’s facility] has continued to and will continue to leak coal ash waste into the Cumberland River, through rainwater vertically penetrating the Site, groundwater laterally penetrating the Site, or both." The trial court determined that the physical properties of the terrain made the area “prone to the continued development of ever newer sinkholes or other karst features." Thus, based on the contaminants flowing from the ponds, the court found defendant to be in violation of the CWA. The trial court also determined that the leakage was in violation of the defendant “removed-substances” and “sanitary-sewer” overflow provisions. The trial court ordered the defendant to "fully excavate" the coal ash in the ponds (13.8 million cubic yards in total) and relocate it to a lined facility.

On further review, the appellate court reversed.  The appellate court held that the CWA does not apply to point source pollution that reaches surface water by means of groundwater movement. The appellate court rejected the plaintiffs’ assertion that mere groundwater is equivalent to a discernable point source through which pollutants travel to a CWA-regulated body of water. The appellate court noted that, to constitute a “conveyance” of groundwater governed by the CWA, the conveyance must be discernible, confined and discrete. While groundwater may constitute a conveyance, the appellate court reasoned that it is neither discernible, confined nor discrete. Rather, the court noted that groundwater is a “diffuse medium” that “seeps in all directions, guided only by the general pull of gravity. This it [groundwater] is neither confined nor discrete.” In addition, the appellate court noted that the CWA only regulates pollutants “…that are added to navigable waters from any point source.” In so holding, the court rejected the holdings in of the prior decisions of the Fourth and Ninth Circuits. 

Conclusion

The Sixth Circuit’s decision is a breath of fresh air for agriculture.  It is the state’s responsibility to regulate nonpoint source pollution.  A hydrological connection was never intended to suffice for federal jurisdiction under the CWA, and the Sixth Circuit said that the other courts finding as such was “misguided.”  The Sixth Circuit stated, “Reading the CWA to extend liability to groundwater pollution is not the best one.” 

Groundwater is not a point source.  The Sixth Circuit’s opinion has big implications for agricultural farming activities and will help keep the federal government out of the farm field in Kentucky, Michigan, Ohio and Tennessee.  It’s also likely that the U.S. Supreme Court will be asked to clear up the split between the circuit courts.  Stay tuned.

October 22, 2018 in Environmental Law | Permalink | Comments (0)