On September 10, 2010, Judge Freudenthal of the District Court of Wyoming entered an Opinion and Order invalidating the U.S. Fish and Wildlife Service's ("FWS" or "Service") critical habitat designation for the Canada Lynx and enjoining its application to certain U.S. Forest Service lands in Washington State in Wyoming & Washington State Snowmobile Ass'ns et al. v. U.S. FWS, Case No. 09-cv-00095-F (D. WY. September 10, 2010). In invalidating the single largest critical habitat designation for a terrestrial species encompassing 39,000 square miles of habitat, Judge Freudenthal found that the FWS failed to fully consider all of the economic impacts of the rule. The Court found that this fundamental defect further undermined the Secretary's decision not to consider a request submitted by the Washington State Snowmobile Association under section 4(b)(2) of the Endangered Species Act ("ESA") to exclude certain federal lands in Washington State from the scope of the rule. That section of the ESA compels the Secretary to balance the costs and benefits of including lands within the designation. In enjoining the rule's application in Washington State, the Court emphasized that the economic analysis can and should be used by the Secretary to assess whether the effects of the designation might unduly burden a particular group or economic sector. The Service's failure to conduct a proper economic analysis therefore infected its decision not to exclude any lands from the rule.

In issuing her ruling, Judge Freudenthal found that while the Service "conducted" a full analysis of all of the economic impacts of the rule, it is "highly questionable" whether the Service "considered" the full analysis of all the economic impacts because only the "quantifiable discounted future incremental costs" associated with the administration of future ESA section 7 consultations are even mentioned in the rule. Slip op. at 44. This is contrary to Tenth Circuit precedent, which not only requires the Service to conduct a full analysis of all the economic impacts, but also to consider those economic impacts in order to give effect to the explicit directive from Congress that the rule be based on the best scientific data available considering "the economic impact, and any other relevant impact, of specifying a particular area as critical habitat." 16 U.S.C. § 1533(b)(2). In reaching this decision, Judge Freudenthal quoted a finding by the FWS Solicitor emphasizing that "Congress wanted the Secretary to understand the costs on human activity of making a designation before he made a decision and thereby provide an opportunity to minimize potential future conflicts between species conservation and other relevant priorities at an early opportunity." Slip op. at 44.

This aspect of the Court's ruling is both groundbreaking and extremely important for third parties, including recreators, industries, and land owners, who may be directly or indirectly affected by critical habitat designations on an economic or other basis. The Court's ruling emphasizes Congress's directive to consider all the economic consequences of critical habitat designations in deciding which lands to include and further directs the Service to consider and address all requests for exclusion under ESA section 4(b)(2) when promulgating a designation. This puts the Service on notice that the discretion it enjoys in deciding how to balance the costs and benefits of including certain lands in future critical habitat designations is not unfettered and that it must consider all reasonable requests for exclusion under ESA section 4(b)(2).

Other aspects of the Court's ruling include findings that the Associations have Article III constitutional standing to bring this challenge, but waived other aspects of their ESA and NEPA challenges by not adequately preserving them in the administrative and citizen-suit processes. In rejecting the Service's standing arguments, the Court emphasized the Associations' well-founded and particularized fears regarding the rule's economic and recreational effects on snowmobiling in popular areas in the North Cascades and in Greater Yellowstone Area included within the designation, giving credence to concerns that the rule will make it difficult or impossible to obtain the necessary approvals to maintain and improve existing trails for safety and related reasons, especially in burned-out areas. Slip op. at 11. Judge Freudenthal also found that the Service's NEPA analysis was adequate, and that its decision to include certain lands in Washington State that were destroyed by stand-replacing-forest fires was not arbitrary and capricious because "the forest fires did not remove the primary constituent element, but merely moved the boreal forest into a different successional stage"—a decision that the Court emphasized involved "technical or scientific matters" within the Service's unique province of expertise. Slip op. at 35.