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Jan 2016
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January 08, 2016

Game Changer? Or Just a Clarification? New Regulatory Definition of "Waters of the United States"

A broad array of state governments, developers, builders, farmers, industries, trade associations, and advocacy groups have filed suit in multiple federal courts to challenge a new regulation under the federal Clean Water Act ("CWA"). The outcome of this litigation has the potential to dramatically affect the level of federal involvement in the development and use of real property in the United States.

Background. On June 29, 2015, the U.S. Environmental Protection Agency ("EPA") and the U.S. Army Corps of Engineers ("ACE") issued their final regulation defining "waters of the United States," or "WOTUS," for purposes of the CWA. Immediately upon issuance, the "WOTUS Rule" spawned a torrent of litigation. 

The purpose of the rule is to delineate those water bodies and wetlands that fall under the protection of the CWA, and therefore under the jurisdiction of the EPA and/or the ACE, depending on the location and type of activity in question.  As such, the rule will in many cases define permissible land uses.  This packs a powerful economic punch that affects facility siting, utility availability, project time lines, and of course the cost of development.  Obtaining a federal permit can take two years or more.1  Expanding the number of projects requiring federal permitting can be expected to lengthen the process.  The WOTUS Rule has the potential to profoundly impact activities across multiple economic sectors, from new energy development to public infrastructure to the family farm.  In addition, the rule has significant potential as a driver of citizen suits by those opposing development.  Whatever its merits, it is no surprise that the rule has attracted intense interest.
 
Some challengers of the WOTUS Rule consider it an unconstitutional incursion on state sovereignty and an unlawful disruption of the federal-state balance in the administration and enforcement of the CWA. On a more practical level, the rule is criticized as an unlawful expansion of the universe of water bodies and wetlands subject to the jurisdiction of EPA and ACE. The rule is also being challenged by environmental groups who believe it does not adequately protect water quality. In the eyes of many commenters, the most compelling criticism of the WOTUS Rule is that it fails to achieve the agencies’ asserted objective of clarifying the reach of the CWA as compared with the status quo, which consists of a hodgepodge of regulations, agency guidance, and conflicting judicial decisions.

The EPA and Army Corps defend the WOTUS Rule as a reasonable interpretation of a series of U.S. Supreme Court decisions on the reach of the CWA. These include, most notably, Rapanos v. U.S.,2 the 2006 decision which stands as the Court’s most definitive judicial statement on the scope of the CWA and the EPA/ACE's regulatory authority.

The Rapanos Case and Justice Kennedy’s Concurrence. Rapanos involved a dispute about federal jurisdiction over wetlands that were adjacent to ditches and non-navigable tributaries to traditional navigable waters.3 Writing for a four-member plurality that voted to remand for reconsideration of the jurisdiction issue, Justice Scalia found that “waters of the United States” are limited to relatively permanent, standing or continuously flowing bodies of water forming geographic features; and that wetlands are subject to federal jurisdiction only where there is a “continuous surface connection” to waters that are WOTUS “in their own right.” Because the wetlands at issue in Rapanosdid not have a continuous surface connection to a tributary that was a relatively permanent water body, the plurality reasoned, the wetlands did not constitute WOTUS.
 
Justice Kennedy authored a separate opinion concurring in the plurality’s decision to remand, but for altogether different reasons. Under the Kennedy concurrence, WOTUS consist of traditionally navigable waters, and all other waters and wetlands having a “significant nexus” to a traditionally navigable water. Departing from the Scalia plurality, Justice Kennedy found that WOTUS need not be “relatively permanent,” nor must they have a surface connection to navigable waters. In the critical passage of the Kennedy concurrence, he defines “significant nexus” as referring to waters or wetlands which, “either alone or in combination with similarly situated lands in the region, significantly affect the chemical, physical, and biological integrity” of traditionally navigable waters.
 
Justice Kennedy’s concurrence and his articulation of the “significant nexus” standard were adopted by the EPA and ACE in ensuing guidance documents, and form the conceptual basis for the WOTUS Rule.

Procedural Status. As the result of ambiguity in the CWA and inconsistent judicial interpretations, it is not clear whether challenges to the WOTUS Rule must be brought in federal district court or in the federal Court of Appeals. Consequently, many petitioners have filed challenges at both the district and appellate court levels. On July 28, the Judicial Panel on Multidistrict Litigation consolidated all of the Circuit Court petitions in the Court of Appeals for the Sixth Circuit. On October 9, the Sixth Circuit issued a nationwide stay of the rule pending its ruling on the jurisdiction issue.

The Judicial Panel declined to consolidate the many pending federal district court actions challenging the rule. The EPA is seeking stays of many of those actions pending the Sixth Circuit’s conclusion on jurisdiction. Separately, bills have been introduced in both houses on Congress providing for repeal of the WOTUS Rule.

On December 8, the Sixth Circuit heard oral arguments on the question of its jurisdiction to adjudicate these challenges. The court’s decision will fundamentally impact the time line within which the public can hope for some finality on the fate of the WOTUS Rule: the next phase (prior to what some perceive as an inevitable return to the Supreme Court) will be determined either in a consolidated proceeding at the Sixth Circuit, or in an assortment of district court decision across the country, which will eventually wend their way through the various appellate courts.

Content of the Rule. The core issue driving most challenges to the WOTUS Rule is the extent to which it will expand the number and types of waters and wetlands that are subject to federal jurisdiction and permitting. There is significant concern in the construction industry, for example, that new developments may be sidelined as the result of commercially infeasible delays in permitting decisions by the EPA or Army Corps. The agricultural community worries that many traditional and long-accepted farming practices may become threatened as a result of murky definitions of regulated waters and broad agency authority to put a federal stamp on many minimally wet areas that have never previously been regarded as jurisdictional.
 
Some of the concerns more frequently expressed by challengers of the WOTUS Rule are: 
  • The rule increases the reach of the CWA primarily through new definitions of "tributary" and "adjacent" waters, both of which include subjective elements that effectively preclude predictability and consistency.
  • The rule regulates any area having a trace amount of water if it also has – or ever had – a bed, banks, and an ordinary high water mark (“OHWM”). This includes many stormwater channels and other features that are almost perpetually dry. Predictability and certainty are further impaired because a dry bed without an OHWM can be identified as a WOTUS if there exists an OHWM somewhere upstream of the property in question.
  • The rule classifies some ephemeral streams (i.e., streams having no flow except from precipitation) as "tributaries" subject to federal jurisdiction if they flow into or through any water that reaches a traditionally navigable water. Similar treatment is given to intermittent streams.
  • The rule covers newly defined "neighboring" waters, which are identified by fixed horizontal distance factors instead of ecological and hydrogeological concepts.
  • The EPA and ACE have tweaked the language of the CWA as quoted in the Kennedy concurrence: where Justice Kennedy’s “significant nexus” test refers to waters that “significantly affect the chemical, physical, and biological integrity” of traditionally navigable waters, the WOTUS Rule covers waters that affect the “chemical, physical, or biological integrity” of navigable waters.
  • With the increase in the scope of federally regulated waters comes a commensurate increase in the potential for third-party citizen suits under Section 505 of the CWA. The CWA citizen suit is a powerful weapon in the hands of those seeking to challenge new developments or property uses. The WOTUS Rule is widely viewed as having failed in its essential purpose of providing clarity to the regulated community – resulting in considerable “gray areas” that are fertile ground for litigation. In many cases it will not be difficult to articulate a plausible argument calling for a site-specific evaluation of WOTUS status. The resulting delay, of itself, can be enough to make investors and lenders skittish and thus terminate a proposed development before the fact.
  • Sanctions for violations of the CWA include natural resource damages, which often reach tens or hundreds of millions of dollars.
  • Property values may be impaired as more lands become subject to federal permitting requirements for development.
  • As noted by many commenters, the final WOTUS Rule contains substantive changes from the proposed version that were not subjected to public notice and comment.
The WOTUS rule also confirms certain exemptions from federal jurisdiction, offering federal clarification where there has previously been uncertainty. These exemptions include stormwater detention ponds, wastewater treatment facilities, and "puddles."
 
Many observers are hoping for some clarification in the coming weeks regarding jurisdiction and venue for WOTUS Rule appeals. It will likely be some time before the merits of these challenges are resolved, whether through litigation, negotiated rulemaking, or federal legislation.


Notes:

1Federal permitting can also involve exorbitant transaction costs (averaging, according to one 2002 study, about
$271,000).
2547 U.S. 715 (2006).
3This article sets forth a highly condensed version of the complex factual scenarios and judicial analysis presented in Rapanos and its companion case, Carabell v. U.S.

ABA Business Law Section, Environmental Committee

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