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Warner Norcross + Judd LLP is a corporate law firm with over 230 attorneys serving clients in nine offices throughout Michigan. Among the largest law firms in Michigan, Warner works in virtually all areas of business law.

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The United States Supreme Court recently issued its opinion in U.S. Army Corps of Engineers v. Hawkes Co., Inc.,<a href="https://www.wnj.com/Publications/Supreme-Court-Federal-Wetland-Jurisdictional-Deter#Note_1">1</a>  establishing a judicial check on “jurisdictional determinations” by federal agencies under the Clean Water Act (CWA). The Hawkes ruling represents a departure from previous case law which denied property owners the right to contest a jurisdictional determination. Now, permit applicants will have the ability to take the federal agencies to court to challenge findings that effectively preclude or limit property development.

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The CWA regulates activities that affect “navigable waters” of the United States, which the CWA broadly defines as “waters of the United States.” As interpreted by the courts, the reach of the CWA extends to any body of water having a “significant nexus” to a navigable waterway.

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The Army Corps and the Environmental Protection Agency (EPA) are the two federal agencies authorized to enforce the CWA. Those agencies have developed a “jurisdictional determination” process (JD), in which the EPA or the Army Corps will decide whether it has jurisdiction over a particular wetland or water body based on whether there is a significant nexus to a navigable waterway. Once approved, the JD is binding on both the EPA and the Army Corps.

The EPA and the Army Corps have historically taken the position that an approved JD, once finalized by the agency (including the administrative appeal process), cannot be appealed to a court of law. In other words, if the agency issues a JD that a wetland is subject to federal jurisdiction, and the property owner disagrees with the JD, the owner cannot challenge the approved JD, but instead must choose among several other poor options, including:

Proceeding with the activity and risking enforcement action; or

Going through the time and expense of applying for a federal permit that the owner believes is not required and that may or may not be granted.

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The courts have generally backed up the agencies’ position on the non-appealability of JDs.

The case involved a proposal by a group of companies (collectively, known as Hawkes) to engage in mining peat, which is an organic material that forms in water-saturated locations with little oxygen. Peat is typically found in wetlands and bogs and has many uses that include providing structural support and moisture for golf course greens. Hawkes planned to mine a tract of wetland on its own property that it believed contained high quality peat for use in golf greens.

Before commencing operations, Hawkes had several discussions with Army Corps staff regarding the project. The Army Corps tried to dissuade Hawkes from mining the area citing to a lengthy and expensive permitting process if the wetland was under CWA jurisdiction. Following these talks, Hawkes applied to the Army Corps for a Section 404 Permit under the CWA, likely to spur the Corps’ determination of whether it had jurisdiction and whether a CWA permit was required at all. Predictably, soon after Hawkes filed its initial applications, the Army Corps issued a preliminary JD claiming the wetland was under federal jurisdiction pursuant to the CWA. The agency stated that at a minimum, a costly environmental assessment was required.

After ongoing negotiations and frequent warnings from the Army Corps that the mining project was unlikely to succeed due to administrative timing and costs, the Army Corps issued a final “approved” JD. The approved JD concluded that the wetland contained waters of the United States due to its connection with a river roughly&nbsp;120 miles away&nbsp;and subjected Hawkes to the CWA and Army Corps jurisdiction.

After unsuccessfully appealing the JD within the Army Corps, Hawkes challenged the approved JD in the United States District Court. The Army Corps argued that under the Administrative Procedure Act (APA), Hawkes was not permitted to judicially contest the approved JD and Hawkes’ challenge must be dismissed.

Under prevailing Supreme Court authority, an agency decision is only reviewable by a court if it is a final decision under the APA. For a decision to be final under the APA:

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The District Court held that, although the first prong was met (because the approved JD was the consummation of the Army Corp’s decision-making process), the approved JD did not determine any rights or obligations of Hawkes. Thus, it held that the approved JD was not subject to judicial review. &nbsp;

Hawkes appealed to the United States Court of Appeals which reversed the District Court’s decision, holding that the District Court’s analysis regarding the second prong “seriously understates the impact of the regulatory action at issue,” and held that the approved JD was, in fact, judicially reviewable. The Army Corps then appealed the decision to the U.S. Supreme Court.

The Supreme Court agreed with the Court of Appeals and found that the approved JD met the test for a final agency decision. It reasoned that:

Unlike [preliminary JDs], which are ‘advisory in nature’ and simply indicate that ‘there may be waters of the United States’ on a parcel of property, an approved JD clearly marks the consummation of the Corps’ decision making process on the question. It is issued after extensive fact-finding by the Corps regarding the physical and hydrological characteristics of the property and is typically not revisited if the permitting process moves forward. The Court further held that that the definitive nature of the approved JD creates direct and appreciable legal consequences. If the property was determined not to contain jurisdictional waters, Hawkes would have a civil enforcement safe haven from the EPA and Army Corps. Likewise, there are clear legal consequences if jurisdictional waters are present because Hawkes may be subject to civil enforcement, not to mention the extensive regulatory hurdles if it proceeds with the permitting process despite the approved JD.&nbsp; &nbsp;

The Court therefore ruled that an approved JD is subject to judicial review and that a party need not wait until future enforcement proceedings to challenge the JD in court.

The decision in&nbsp;Hawkes&nbsp;marks a trend in recent CWA Supreme Court decisions to expand judicial review of agency actions under the CWA. In the 2012 decision,&nbsp;Sackett v. EPA, the Court determined that an EPA administrative compliance order “is a final agency action for which there is no adequate remedy other than [judicial] review and that the CWA does not preclude that review.”

In&nbsp;Sackett, the EPA issued an administrative compliance order to the petitioners to restore wetlands they damaged without a permit, subjecting them to $75,000 in fines if they did not comply. Like the Army Corps in&nbsp;Hawkes, the EPA lost their argument that the administrative compliance order was not a final agency action.

Hawkes&nbsp;coupled with&nbsp;Sackett&nbsp;signals continuing questions on the part of some justices, and particularly Justice Kennedy, regarding the limits of CWA jurisdiction. As noted in Justice Kennedy’s concurrence in&nbsp;Hawkes, “The [CWA] . . . continues to raise troubling questions regarding the Government’s power to cast doubt on the full use and enjoyment of private property throughout the Nation.” Some commenters feel Hawkes may foreshadow the anticipated adjudication of the Waters of the United States rule, promulgated in 2015 by the EPA and Army Corps and presently pending in the Sixth Circuit Court of Appeals.

These decisions may lead to legislative changes or revisions to the EPA and Army Corps’ CWA rules which could impact you or your business. If you have any questions regarding these issues please contact Patrick Tully at 248.784.5064 or <a href="mailto:ptully@wnj.com">ptully@wnj.com</a> or Scott Hubbard at 616.752.2157 or <a href="mailto:shubbard@wnj.com">shubbard@wnj.com</a>.

<a>1</a>US Army Corps of Engineers v. Hawkes Co., Inc., 136 S. Ct. 1807 (2016).

Resources, Energy and Environmental Law

Supreme Court: Federal Wetland Jurisdictional Determinations Can Be Appealed

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