Recently, the Ninth Circuit sitting en banc issued a landmark decision regarding the consultation provisions of the Endangered Species Act. The consultation provisions require any federal agency that authorizes, funds or carries out an action that may affect a listed species or its designated critical habitat to consult with the applicable federal wildlife agency regarding the effects of the action on the relevant species and critical habitat. In a unanimous decision, the court held that the U.S. Bureau of Reclamation's decision to renew long-term contracts to provide water to nonfederal parties triggers the duty to consult.
The decision, which reversed prior decisions by a three-judge Ninth Circuit panel and federal district court, effectively requires the USBR to consult with the U.S. Fish and Wildlife Service regarding the effects of contract renewals on the threatened delta smelt and to renegotiate the contracts following such consultation. It has potentially far-reaching implications in California because it suggests that even those who hold long-term contracts with the U.S. for the provision of water or who hold senior water rights under state law must comply with the ESA. Additionally, it has broad implications as one of a small number of circuit court decisions interpreting the jurisprudential contours of the U.S. Supreme Court's decision in National Association of Home Builders v. Defenders of Wildlife, 551 U.S. 644 (2007).
The USBR operates the Central Valley Project, which consists of a large-scale series of reservoirs, dams, canals and associated waterworks in California. In the 1960s, the USBR entered into numerous long-term contracts to provide water to public and private parties, including certain parties with senior water rights under California law. In the early 2000s, the USBR began renewing the contracts, which during that time, the bureau sought and obtained concurrence from the FWS with its determination that renewing the contracts was not likely to adversely affect the delta smelt.
In 2008, environmental plaintiffs challenged the validity of certain renewed contracts, arguing the USBR failed to adequately consult under Section 7(a)(2) of the ESA. In deciding the matter, the lower court and Ninth Circuit panel addressed two sets of contracts, the Delta Mendota Canal ("DMC") contracts and the settlement contracts, separately.
First, the district court held plaintiffs lacked standing to challenge the DMC contracts. The lower court opined that plaintiffs failed to establish a causal connection between the injury complained of — over commitment of water by the USBR — and the bureau's action in renewing the contracts. The panel majority agreed with the district court, reasoning that the DMC contracts include a provision that "expressly allows the [b]ureau to take any action to meet its legal obligations, which includes not delivering water to DMC contractors if it is necessary in order to comply with Section 7(a)(2) of the ESA." Nat. Resource Defense Council v. Salazar, 686 F.3d 1092, 1098 (9th Cir. 2012), rev'd en banc 2014 U.S. App. LEXIS 7063 (April 16, 2014). The panel dissent contested the majority's reasoning, characterizing it as senseless. The dissent went on to reason that the fact "[t]hat the contracts allow the [USBR] to comply with the ESA certainly does not ensure that the [b]ureau will do so."
Second, the district court held that the consultation requirement does not apply with respect to the settlement contracts. This holding was based on the court's interpretation of Central Valley Project authorizing legislation, the existing settlement contracts and the joint consultation regulations that implement Section 7(a)(2) of the ESA. Those regulations provide that "Section 7 and the requirements of this part apply to all actions in which there is discretionary [f]ederal involvement or control." 50 C.F.R. 402.03. The district court reasoned that renewal of the settlement contracts is substantially constrained by prior contract, which specifies, inter alia, the quantity of water and place of use. National Resource Defense Council v. Kempthorne, 621 F. Supp. 2d 954, 984 (E.D. Cal. 2009). In a 2-1 decision, a three-judge panel of the Ninth Circuit affirmed the district court's decision.
The en banc court vacated the panel decision upon granting en banc review and subsequently reversed both prongs of the district court decision.
Whereas the lower court held that the DMC contracts include a provision that provides the fullest possible protection to delta smelt so that plaintiffs cannot demonstrate a causal link to the injury complained of — and, therefore, cannot establish standing — the Ninth Circuit disagreed.
The en banc court held that the pertinent contractual provision is permissive — allowing the USBR to take action to meet applicable legal obligations — but does not require the bureau to act to protect delta smelt. The court went on to state a number of ways the DMC contracts could have been structured to benefit delta smelt.
With respect to the settlement contracts, whereas the lower court held the USBR's discretion is substantially constrained, the en banc panel held that the settlement contracts do not strip the bureau of all discretion to benefit the delta smelt. Even assuming that the USBR has no discretion to renew and cannot renegotiate with respect to the quantities and allocation of water, the en banc court held that the bureau could renegotiate other contract terms, for example, regarding pricing or the timing of deliveries. This, the court held, afforded the USBR sufficiency discretion to distinguish the case from National Association of Home Builders and trigger the duty to consult.
The Ninth Circuit's decision is important because it is perhaps the most notable and detailed post-National Association of Home Builders case to interpret the application of the discretionary vs. nondiscretionary distinction. At least in the Ninth Circuit, it is now clear that where an agency retains even a modicum of discretion and how that agency must proceed to consult where an action it funds, authorizes or carries out may affect listed species or designated critical habitat.