United States Army Corps of Engineers v. Hawkes Co., Inc. (5/31/16, No. 15-290)

In a widely anticipated decision in the wake of the Sackette v. EPA (132 S.Ct. 1367 (2012) decision, the U.S. Supreme Court decided that federal courts can review Army Corps of Engineers’ (“Corps”) determinations that a waterbody is subject to Clean Water Act regulation, resolving a split between the circuits in a victory for land owners.

The underlying dispute involved Hawkes Co. Inc. (“Hawkes”), which is in the business of mining peat on land it owned in northwestern Minnesota. Hawkes sought to expand its business onto an adjacent property it wanted to purchase. In 2010, it got a “preliminary” jurisdictional determination or “JD” from the Corps, which concluded the property contained waters of the U.S. subject to the Clean Water Act. Hawkes objected, and after further discussion, the Corps issued an “approved” JD in 2012 concluding the property contains wetlands that (a) have a significant nexus with the Red River, a traditional navigable water some 120 miles away, and (b) are therefore subject to Clean Water Act jurisdiction.

Hawkes sued the Corps in January 2013 over the approved JD, alleging that the Corps’ assertion of jurisdiction was unlawful and prevented it from using the property without fear of a Clean Water Act enforcement action, fines, and penalties. The U.S. District Court granted the Corps’ motion to dismiss for failure to state a claim because the approved JD was not a final agency action subject to review under the Administrative Procedures Act under Bennett v. Spear, 520 U.S. 154 (1997). In 2015, the Eighth Circuit disagreed, finding the approved JD met both prongs of the Bennett test: (1) the approved JD was the consummation of the Corps’ decision making process on the threshold issue of the agency’s statutory authority, and judicial review would not be disruptive because a party could seek an approved JD without seeking a permit; and (2) the approved JD was one in which “rights and obligations had been determined” and from which “legal consequences will flow.” The Eighth Circuit’s decision was in contrast to previous holdings by the Fifth Circuit (Belle Co., LLC v. U.S. Army Corps of Eng’rs, 761 F.3d 383 (5th Cir. 2014)) and the Ninth Circuit (Fairbanks North Star Borough v. U.S. Army Corps of Eng’rs, 543 F.3d 586 (9th Cir. 2008), both of which had held a JD failed to meet Bennett’s second prong.

In a unanimous decision, the justices upheld the Eighth Circuit’s ruling that approved JDs are final agency actions that can be reviewed by courts under the Administrative Procedure Act. Writing for the court, Chief Justice John Roberts said the Corps’ JDs meet the Bennett criteria: “While no administrative or criminal proceeding can be brought for failure to conform to the approved JD itself, that final agency determination not only deprives respondents of a five-year safe harbor from liability under the [Clean Water Act], but warns that if they discharge pollutants onto their property without obtaining a permit from the Corps, they do so at the risk of significant criminal and civil penalties.”

The court rejected the Corps’ argument that land owners had adequate remedies to challenge JDs outside of the courts: discharge fill material without a permit and assert that no permit was required if faced with an EPA enforcement action, or apply for a permit and seek judicial review if they didn’t like the result. The Court found neither alternative adequate: “As we have long held, parties need not await enforcement proceedings before challenging final agency action where such proceedings carry the risk of ‘serious criminal and civil penalties.’” This aspect of the Court’s decision was widely anticipated after its decision in Sackette v. EPA, 132 S.Ct. 1367 (2012). In Sackette, a unanimous Court held that a party subject to an EPA compliance order under the Clean Water Act could obtain “pre-enforcement review” to challenge the order under the APA. The EPA has issued a compliance order that required restoration of wetlands that had been altered without a permit and subjected the owners to a risk of $75,000/day. The Court found this met both prongs of the Bennett test because it exposed the owners to stiff penalties for non-compliance and there was no further agency review possible.