Appeals Courts Split as Eighth Circuit Finds Jurisdictional Determination Is Final Action

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By Lars-Eric Hedberg

April 10 — The U.S. Court of Appeals for the Eighth Circuit ruled April 10 that a jurisdictional determination under the Clean Water Act regarding Minnesota wetlands is a final agency action subject to judicial review, creating an apparent split among the circuits.

In its ruling, the Eighth Circuit reversed the decision by the U.S. District Court for the District of Minnesota, which granted a motion by the U.S. Army Corps of Engineers to dismiss a complaint filed by Hawkes Co., Inc. for failing to state a claim.

Hawkes was seeking to mine peat from wetland property owned by Pierce Investment Co. and LPF Properties LLC in northwestern Minnesota and had an option to purchase the property from these companies subject to securing regulatory approval. It was determined the property contained wetlands requiring the company to obtain a permit to mine the peat.

In his majority opinion for the U.S. Court of Appeals for the Eighth Circuit, Judge James B. Loken concluded that both the district court and the Fifth Circuit misapplied the Supreme Court's ruling in Sackett v. EPA, 132 S. Ct. 1367, 182 L. Ed. 2d 367, 73 ERC 2121 (U.S. 2012), when they held that a jurisdictional determination is not a final agency action.

In Sackett, the Supreme Court held that an administrative compliance order issued by the EPA prior to the agency's filing of a civil enforcement action is a final agency action subject to judicial review.

The Eighth Circuit found that the “flexible final agency action standard in Sackett should also apply in this case,” and that, in light of the principles of ripeness and final agency action, an approved jurisdictional determination is subject to review.

May Get Attention of Supreme Court 

M. Reed Hopper, an attorney from the Pacific Legal Foundation and counsel for Hawkes, told Bloomberg BNA April 10 that, based on the oral argument, he wasn't surprised by the ruling and added that the circuit split will put the issue on the Supreme Court's radar.

“The Eighth Circuit case is almost factually identical to the Fifth Circuit case,” said Hopper, who also represented the parties challenging the corps' determination in the Fifth Circuit.

“The factual similarities will strengthen arguments that the Supreme Court needs to consider this issue,” he said.

Final Agency Action at Issue

The corps made a preliminary determination that the property at issue contains jurisdictional wetlands, and the companies filed an administrative appeal. The hearing officer concluded that the record didn't support the determination and remanded to the district engineer.

On remand, however, the district engineer found that the wetlands have a “significant nexus” to navigable waters and therefore require a Clean Water Act Section 404 dredge-and-fill permit. The companies then filed an action for judicial review in January 2013.

Under Section 704 of the Administrative Procedure Act, judicial review is only available for final agency action, which the Supreme Court defined as “the consummation of the agency's decision-making process” that can determine rights or obligations “from which legal consequences can flow” (Bennett v. Spear, 520 U.S. 154 (U.S. 1997)).

The district court held that although the corps' jurisdictional determination marked the beginning of the agency's decision-making process, it didn't result in any changes to the companies' rights or obligations. However, in Sackett, the order directed the petitioners to restore altered property under the threat of penalties (Hawkes Co., Inc. v. U.S. Army Corps of Eng'rs, 963 F. Supp. 2d 868, 2013 BL 206894 (D. Minn. 2013)).

Eighth Circuit: Regulatory Impacts ‘Understated.'

The Eighth Circuit disagreed, writing that the lower court opinion “seriously understates the impact of the regulatory action at issue by exaggerating the distinction between an agency order that compels affirmative action, and an order that prohibits a party from taking otherwise lawful action.”

According to the appeals court, a number of Supreme Court decisions support a finding that a jurisdictional determination that alters and adversely affects the companies' right to use the land for lawful business activities satisfies the rights and obligations prong of the agency action test.

The court of appeals also rejected the corps' argument and district court's finding that the companies have options to contest the determination. Completing the permit process would be “prohibitively expensive and futile” because the corps already signaled its intent to deny the permit, the court found.

Mining without a permit while awaiting an enforcement action would expose the companies to criminal monetary penalties and possibly even imprisonment, the Eighth Circuit said.

Lastly, the appeals court said that Sackett stands for the proposition that the EPA can't force parties affected by the CWA to voluntarily comply without an opportunity for judicial review of the decision that brings them within the law's reach.

Split With Fifth Circuit 

The Eighth Circuit's final agency action ruling sits squarely in opposition to the Fifth Circuit's July 2014 ruling in Belle Co. LLC v. U.S. Army Corps of Engineers, 761 F.3d 383, 78 ERC 1933, 2014 BL 210374 (5th Cir. 2014).

In Belle, the Fifth Circuit found, much like the district court in Hawkes, that although the corps' jurisdictional determination marked the consummation of the corps' decision-making process, it didn't determine the rights or obligations of Kent Recycling Services LLC with respect to a permit and legal consequences didn't result from the determination.

Kent, which has an option to purchase the property from Belle Co. in the event that the property can be used as a solid waste landfill, petitioned the U.S. Supreme Court to hear oral argument on the Fifth Circuit's ruling, but the high court denied the petition (Kent Recycling Servs. LLC v. U.S. Army Corps of Eng'rs, U.S., No. 14-493, cert. denied, 3/23/15).

What's Next in Jurisdiction Cases 

The Supreme Court's denial may signal that it is comfortable with the Fifth Circuit's decision, particularly the appeals court's interpretation of Sackett.

The Eighth Circuit's decision, however, also calls into question whether the law is settled and may require the Supreme Court to reopen the issue.

Hopper told Bloomberg BNA that the Supreme Court's decision to deny Kent Recycling's petition means little, as the court turned down the opportunity to hear the jurisdictional issue in Rapanos v. United States, 547 U.S. 715, 126 S. Ct. 2208, 165 L. Ed. 2d 159, 62 ERC 1481 (U.S. 2006) nearly half a dozen times before taking it up.

As to Kent, Hopper said he plans to move forward despite the setback.

“Once a petition is denied, a petitioner has 25 days to file a petition for rehearing if a significant legal development happens,” he said. “Based on the Eighth Circuit's ruling, we plan to file a petition for rehearing that points out the circuit split and urges the Supreme Court to hear the case.”

Another Jurisdictional Case Appeal Is Pending 

Another jurisdictional case appeal is pending before the D.C. Circuit. The National Association of Home Builders contends that the district court improperly dismissed its challenge of a finding that portions of the Santa Cruz River are traditional navigable waters under the CWA and therefore subject to permitting requirements (Nat'l Ass'n of Home Builders v. EPA, D.C. Cir., No. 13-5290, oral argument, 11/24/14.

Nancy A. Burke and Gregory R. Merz of Gray Plant Mooty, Minneapolis, and Hopper and Damian Schiff of the Pacific Legal Foundation, Sacramento, represented the companies.

Daniel R. Dertke, Robert Lundman and Friedrich A.P. Siekert of the Department of Justice and Molly McKegney Hunt of the U.S. Army Corps of Engineers represented the corps.

To contact the reporter on this story: Lars-Eric Hedberg in Washington at lhedberg@bna.com

To contact the editor responsible for this story: Greg Henderson at ghenderson@bna.com

The opinion of the U.S. Court of Appeals for the Eighth Circuit in Hawkes Co., Inc. v. U.S. Army Corps of Engineers is available at http://www.bloomberglaw.com/public/document/Hawkes_Co_Inc_et_al_v_US_Army_Corps_of_Engineers_Docket_No_130306.