In 2012, the U.S. Fish and Wildlife Service (Service) published a final rule designating 1,724 acres as critical habitat for the endangered Riverside fairy shrimp (Streptocephalus woottoni).  Included in that designation were 56 acres of private land, on which the plaintiff, Otay Mesa Property, L.P. (Otay Mesa), had planned to build a recycling facility and landfill.  Because of the land use restrictions potentially implicated by the critical habitat designation, Otay Mesa challenged the final rule in federal court, asserting that (1) the Service improperly determined that the property met the definition of critical habitat in the Endangered Species Act (ESA), (2) the Service did not properly account for the economic consequences of the designation under the ESA, and (3) the Service failed to comply with the National Environmental Policy Act before issuing the final rule, as the Service did not prepare an environmental assessment analyzing the environmental impacts of the critical habitat designation.  In a recent opinion, the United States District Court for the District of Columbia rejected the majority of Otay Mesa’s arguments, although it did find that further briefing was necessary on the issue of whether the entire 56 acres was properly designated as critical habitat.  Otay Mesa Property, L.P. v. U.S. Dep’t of the Interior, Case No. 13-cv-0240 (D.D.C. Nov. 13, 2015).

Under the ESA, the Service is strongly encouraged to issue a critical habitat designation whenever it decides to list a species as threatened or endangered.  However, when the Service listed the Riverside fairy shrimp as an endangered species in 1993, it did not designate any critical habitat.  Instead, the first critical habitat designation took place in 2001.  That designation, however, was challenged in federal court, and as a result the Service issued a revised critical habitat designation in 2005.  With respect to the 56 acres, while the Service concluded that the property met the statutory definition of critical habitat, it decided not to include the 56 acres based on an economic analysis of the designation, finding that the benefits of exclusion exceeded (estimated to be between $5 million and $31 million) the costs of inclusion.  Again, however, the Service’s critical habitat designation was challenged in federal court, thus leading to the 2012 final rule at issue in the Otay Mesa litigation.

The inclusion of the 56 acres in the 2012 critical habitat designation was based on three environmental surveys of a former cattle stock pond on the property.  These surveys positively established that Riverside fairy shrimp were located in the stock pond.  In order to include the entire 56 acres surrounding the stock pond in the designation, the Service also found that the surrounding acreage comprised the watershed for the stock pond.

With respect to the economic analysis, the Service, employing a different methodology than that used in 2005, found that the estimated costs associated with the critical habitat designation were only between $1.77 million and $2.85 million.  In light of this new analysis, the Service elected not exercise its discretion to exclude the property from designation.

The district court found that with respect to the stock pond and the surrounding watershed, the Service’s designation was supported by substantial evidence, and therefore was properly designated as critical habitat.  The court explained that “the record evidence amply supports the agency’s conclusion that Riverside fairy shrimp occupied the vernal pool that exists on [the property] at the time the species was listed, and the [Service] rationally determined that the watershed area surrounding that pool is part of the occupied critical habitat for that endangered species.”  The court also upheld the Service’s alternate finding, stating that the area “qualifies as ‘unoccupied’ critical habitat because preservation of the stock pond and watershed is essential to the conservation of the shrimp that indisputably exist there at present.”  The court, however, could not make a finding as to the entirety of the 56 acres, because the record portions that were provided to the court did not contain any topographical maps or other record evidence justifying the conclusion that the entire 56 acres were accurately identified as a watershed for the stock pond.  Accordingly, the court ordered the parties to identify any additional portions of the record that related to the watershed issue, and established a supplemental briefing schedule.

The district court rejected the argument that the Service employed an improper methodology when analyzing the economic impacts of the critical habitat designation, explaining that while the methodology was clearly different than what was employed in 2005, the Service’s deviation from the 2005 methodology was supported by a rational explanation – the new methodology was developed as a result of prior conflicting court decisions.

Finally, while the district court acknowledged that the U.S. Court of Appeals for the Tenth Circuit and Ninth Circuit had reached conflicting conclusions with respect to whether an environmental assessment must be conducted prior to a critical habitat designation, it stated “that the Ninth Circuit has the better of the argument,” and therefore the Service was not required to prepare an environmental assessment or environmental impact statement prior to issuing the final rule.