11th Circuit: CWR decision belongs to 6th Circuit

CWR - WOTUS Decision Left to Sixth Circuit

11th Circuit: CWR decision belongs to 6th Circuit

The Eleventh Circuit Court of Appeals recently dealt a significant blow to opponents of the Obama administration’s controversial Clean Water Rule (CWR), which redefines the “waters of the United States” (WOTUS).  The three-judge panel sitting in Atlanta ordered that an appeal taken on behalf of a number of states, including Utah, would be put on hold pending a decision from the Sixth Circuit Court of Appeals in a case that made an identical challenge to the CWR.

Sixth Circuit Issues National Stay of CWR in Split Decision

The Sixth Circuit ordered a nationwide stay of the CWR last year in In re EPA, while it determined whether it had jurisdiction to hear the case.  In February, the Sixth Circuit decided that it, and not a lower federal district court, had jurisdiction over the case.  in a splintered decision, two of the three judges deciding the jurisdiction question concluded that the Sixth Circuit had jurisdiction to hear challenges to the CWR under either 33 U.S.C § 1369(b)(1)(E) or (F).  While acknowledging that the WOTUS rule does not fit neatly into the categories for which § 1369 provides for circuit court jurisdiction, Judge David McKeague concluded that these provisions have been given expansive interpretations by the courts, sufficient to provide for jurisdiction.

A Strange Concurrence

Judge Richard Allen Griffin concurred in the result, even though he concluded that neither provision of § 1369 supplied the Sixth Circuit with jurisdiction to hear challenges to the CWR.  Nonetheless, Judge Griffin set forth that the Sixth Circuit was obligated to conclude that the court had jurisdiction under § 1369(b)(1)(F) pursuant to the ruling in National Council of America v. U.S. EPA.  In National Council of America, the Sixth Circuit held that it had jurisdiction over any regulation “governing” permits.  According to Griffin, while there would be no jurisdiction under a “plain text reading” of the statute, he concluded he was “constrained by our court’s precedent holding that ‘issuing or denying any permit’ means more than just that.”

Senior Judge Damon J. Keith dissented from Judge McKeague’s majority opinion, claiming that the relevant portions of the CWA do not provide for jurisdiction to challenge the WOTUS rule in a circuit court, and that the National Cotton Council decision should not be read so broadly as to provide for jurisdiction here.

Georgia Federal Court Determines Jurisdiction Rests With Court of Appeals

While the Sixth Circuit has decided it can hear a challenge to the CWR, other opponents of the CWR filed a similar case against the CWR in federal court in the Southern District of Georgia on June 30, 2015.  In that case, the plaintiffs made much the same contentions as those in the Sixth Circuit case—namely that the CWR was invalid and that the Environmental Protection Agency (EPA) and U.S. Army Corps of Engineers (USACE) should be enjoined from enforcing the rule.  On August 27, 2015, the Georgia federal court denied the plaintiffs’ motion to enjoin enforcement of the CWR, concluding that 33 U.S.C. § 1369(b)(1) gives courts of appeals exclusive original jurisdiction over challenges to the rule.  Plaintiffs appealed the court’s ruling to the Eleventh Circuit in Atlanta.

Eleventh Circuit Asks Parties to File Supplemental Briefing in Light of Sixth Circuit’s Decision

After the Sixth Circuit determined that it had jurisdiction over challenges to the CWA, the Eleventh Circuit asked the parties to brief:

1) whether this appeal is moot in light of the Sixth Circuit’s nationwide stay of enforcement of the Clean Water Rule in In re EPA I;

2) whether we should stay any further proceedings in this case while the In re EPA I stay order remains in effect;

3) whether we should hold this appeal in abeyance pending the Sixth Circuit’s decision concerning the validity of the rule;

4) whether we are bound by the Sixth Circuit’s determination in In re EPA II that courts of appeals have exclusive original jurisdiction over challenges to the rule;

5) whether the determination of jurisdiction in In re EPA II has preclusive effect on that issue in this appeal; and

6) if not, what persuasive weight we should give to In re EPA II.

Eleventh Circuit Leaves CWR Determination Up to Sixth Circuit

Following oral argument on the aforementioned issues, the Eleventh Circuit issued an opinion declining to hear the merits of the appellant’s case, instead deferring to any ruling on the merits from the Sixth Circuit.  According to the Eleventh Circuit, it would be a “colossal waste of judicial resources” for it to get involved in the ongoing legal challenge to the rule.  Citing the general rule against “duplicative litigation,” the Eleventh Circuit said:

If there were an exhibition hall for prudential restraint on the exercise of judicial authority, this case could be an exemplar in the duplicative litigation wing. The case before us and the case before the Sixth Circuit involve the same parties on each side, the same jurisdictional and merits issues, and the same requested relief … It would be a colossal waste of judicial resources for both this Court and the Sixth Circuit to undertake to decide the same issues about the same rule presented by the same parties.

All Eyes on the Sixth Circuit

Given the Eleventh Circuit’s decision to defer to the Sixth Circuit, all eyes are on the Sixth Circuit and its impending decision on the merits of the challenge to the CWR.  Petitioners’ initial substantive briefs on the merits are due September 30, 2016, respondent agencies’ brief is due November 30, 2016, and replies are due January 20, 2017 (Inauguration Day).   The court has ordered the parties to submit a joint appendix of documents from the administrative record for the court’s consideration by February 3, 2017.  The Sixth Circuit will then schedule oral argument.  The extended schedule reflects the complexity of the litigation and while the current Administration will file the respondents’ brief, the next Administration will argue the cause.

U.S. Chamber and Others Ask Tenth Circuit to Revive Challenge to CWR

In addition to the Sixth Circuit and Eleventh Circuit cases over the CWR, The U.S. Chamber, along with the National Federation of Independent Business, Portland Cement Association, State Chamber of Oklahoma, and Tulsa Regional Chamber, filed their own appeal at the Tenth Circuit Court of Appeals, asking the Tenth Circuit to reverse the U.S. District Court for the Northern District of Oklahoma’s decision to dismiss the case.

In their opening brief, the appellants argued to the Tenth Circuit that it has an independent obligation to determine its jurisdiction.  Additionally, to the extent the district court deferred to the Sixth Circuit, the appellants argued the district court erred because the CWA’s text and the established default rule under the Administrative Procedure Act (APA) clearly indicate that the district court has original jurisdiction over the WOTUS rule, as none of the CWA’s limited exceptions providing for original jurisdiction in the courts of appeals apply in this case.  Finally, appellants argued that the agencies’ policy-based reading of the CWA finds no support in Supreme Court or Tenth Circuit precedent, much less in the plain text of the CWA.  The Tenth Circuit has not yet ruled on the question of jurisdiction before it.

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Copyright 2016

USACE Section 404 Permit

Section 404 violation undisclosed in Favero

Section 404 of the Clean Water Act (“CWA”) sets forth a program to regulate the discharge of dredged or fill material into the waters of the United States (“WOTUS”), including wetlands.  Section 404 regulates a number of activities in the WOTUS, including fill development, water resource projects (such as dams and levees), infrastructure development (such as highways and airports) and mining projects.  Before dredged or fill material may be discharged into the WOTUS a permit must be obtained, unless the activity is exempt from Section 404 regulation.

Premise of the Section 404 Program

The Environmental Protection Agency (“EPA”) has said, “The basic premise of the program is that no discharge of dredged or fill material may be permitted if: (1) a practicable alternative exists that is less damaging to the aquatic environment or (2) the nation’s waters would be significantly degraded.”  This means that when a permit is applied for, the applicant “must first show that steps have been taken to avoid impact to wetlands, streams and other aquatic resources; that potential impacts have been minimized; and that compensation will be provided for all remaining unavoidable impacts,” the EPA has said.

Any proposed activities are regulated through a permit review process.  The EPA sets forth that “[a]n individual permit is required for significant impacts,” and that “[i]ndividual permits are reviewed by the U.S. Army Corps of Engineers [“USACE”], which evaluates applications under a public interest review, as well as the environmental criteria set forth in the CWA Section 404(b)(1) Guidelines.”

General Permit Process

The EPA has iterated that for most discharges of dredged or fill material that will only have “minimal adverse effects,” a “general permit” may suffice.  Those general permits are “issued on a nationwide, regional, or state basis for particular categories of activities.”  By way of the general permit process, individual review is limited while at the same time certain activities are allowed to proceed with little to no delay, so long as “the general or specific conditions for the general permit are met.”  For example, minor road activities, utility line backfill, and bedding are activities that can be considered for a general permit. States also have a role in Section 404 decisions, through State program general permitswater quality certification, or program assumption.”

Favero Farms, LC v. Baugh

A recent case from the Utah Court of Appeals underscores the importance of the Section 404 permit process and what can happen to a seller or land that fails to obtain such a permit and/or fails to disclose a Section 404 violation to a buyer.  In Favero Farms, LC v. Baugh, the Utah Court of Appeals affirmed the lower district’s determination that the sellers had breached their contract with the buyer, as well as breached the covenant against encumbrances and the implied covenant of good faith and fair dealing.

The property at issue in Favero was approximately 20 acres of land in Weber County, Utah.  The sellers met with a wetlands consultant in 2004 who told the sellers that their property contained wetlands, and, as a result, the sellers needed to obtain a permit from the USACE before they could use fill dirt on their property.  However, even though the sellers had already placed some fill dirt on the property prior to that time, and placed additional fill dirt on the property after they met with the wetlands consultant, they never obtained a Section 404 permit for any of the fill dirt.

In 2005, a representative from the USACE inspected the sellers’ property and advised them that the fill dirt on their property constituted a Section 404 violation.  The USACE representative instructed the sellers to remove the fill dirt from their property and to install a silt fence up against the wetlands.  Again, the sellers failed to comply.

In August 2009, the sellers sold the property.  The real estate purchase contract (“REPC”) between the parties required the sellers to disclose “conditions known to [the sellers] relating to environmental problems and building or zoning code violations.”  Pursuant to the REPC, the buyer had a right to object to the disclosures or cancel the contract if it did not acquiesce to what was revealed by the disclosures.  Even still, the sellers never delivered any disclosures to the buyer and never informed the buyer of the existence of the wetlands or the wetlands violation.

After the sale of the property closed, the buyer became aware of the Section 404 violation and learned that it could not use the property for agricultural purposes “without extensive work and repairs” and that it would need to restore or relocate the wetlands in order to comply with federal requirements.  Accordingly, the buyer sued the sellers alleging  breach of contract, breach of the covenants in the warranty deed, breach of the covenant of good faith and fair dealing, negligence, and fraudulent misrepresentation.  Following a bench trial, the trial court dismissed the buyer’s negligence and fraudulent misrepresentation claims but granted judgment in favor of the buyer on its other three claims.  The lower district court awarded the buyer  awarded damages in the amount of $200,000 based on testimony that it would “cost between $197,850 and $287,850 to restore or mitigate the damages to the wetland property.”  The court also ordered that the sellers pay the buyer’s attorney fees in the amount of $32,853.63, based on the provisions of the REPC.  The sellers subsequently appealed.

Warranties Made by Sellers in REPC Survived Closing

On appeal, the sellers made several arguments, which the Utah Court of Appeals roundly rejected.  First, the sellers argued that the buyer’s representation in the Escrow Instructions that it accepted the property “in its present condition” amounted to an as-is acceptance that the property would be delivered in “generally accepted agricultural condition.”  The Court of Appeals disagreed.

There, the Court of Appeals concluded:

Because the Escrow Instructions indicated that warrants made in the REPC would survive closing if not specifically deleted, the “generally accepted agricultural condition” promised by the [the sellers] was part of the “present condition” in which [the buyer] believed it was accepting the property.  Thus, the trial court did not err in concluding that the [sellers] breached the REPC and the Escrow Instructions by failing to deliver the property in generally accepted agricultural condition.

Sellers Violated Covenant Against Encumbrances by Failing to Disclose Section 404 Violation

Second, the sellers argued that the trial court erred in determining that their failure to disclose the wetlands violation constituted a breach of the warranty deed’s covenant against encumbrances.  Again, the Court of Appeals rejected the sellers’ arguments, concluding:

The [sellers] were aware of the wetlands violation and, in fact, committed it themselves. Furthermore, the Army Corps of Engineers had informed the [sellers] that their improvements violated the wetlands restrictions and had ordered them to remove the fill dirt and construct a silt fence.  Because the [sellers] were aware of the wetlands violation and the Army Corps of Engineers had taken action to compel compliance with the wetlands regulations prior to the time the warranty deed was conveyed, the violation is an “interest in a third person” that “constitutes a burden or limitation upon the rights of the fee title holder.”  Accordingly, the trial court did not err in concluding that the [sellers] had breached the covenant against encumbrances by conveying the property without disclosing the existence of the wetlands violation.

Sellers Violated Implied Covenant of Good Faith and Fair Dealing by Failing to Disclose Section 404 Violation

Finally, the sellers challenged the trial court’s determination that they breached the implied covenant of good faith and fair dealing by failing to disclose the wetlands violation.  The Court of Appeals determined:

The trial court’s findings support its determination that the [sellers] breached the covenant of good faith and fair dealing.  By failing to make the disclosures, the [sellers] misled [the buyer] concerning the existence of environmental problems on the property and thereby deprived it of the opportunity to object or cancel the contract in accordance with its rights under the REPC.  Thus, the trial court did not clearly err in concluding that the [sellers] breached the covenant of good faith and fair dealing by failing to disclose the existence of the wetlands violation.

Buyers Entitled to Attorney Fees Under REPC

Having determined the substantive issues on appeal, the Court of Appeals turned to the issue of attorney fees.  There, the Court of Appeals upheld the district court’s attorney fee award, which was made pursuant to the explicit language of the REPC that provided that  “[i]n the event of litigation . . . to enforce [the REPC], the prevailing party shall be entitled to costs and reasonable attorney fees.”

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