The United States Supreme Court recently addressed whether the United States Army Corps of Engineers’ determination that wetlands are “waters of the United States” constitutes a final agency action that is subject to judicial review under the Administrative Procedure Act in U.S. Army Corps of Engineers v. Hawkes Co., Inc., 15-290, 2016 WL 3041052 (U.S. May 31, 2016).  In a unanimous decision, the Court held that the Corps’ determination that property constitutes “water of the United States” is a final agency action that is judicially reviewable under the Administrative Procedure Act.  As a result, parties who are uncertain whether their activities implicate “waters of the United States” and resultant Corps jurisdiction can now seek immediate judicial review of an unfavorable administrative determination, as opposed to the only prior alternatives of (i) proceeding with the expensive and time-consuming process of applying for a permit and then seeking judicial review, or (ii) engaging in the activity without a permit at the risk of an EPA enforcement action.

The Corps’ definition of whether property constitutes “waters of the United States” is significant because the Clean Water Act regulates the discharge of pollutants into “the waters of the United States.”  See, 33 U.S.C. §§ 1311(a), 1362(7), (12).  The Corps has defined the waters of the United States very broadly, along the lines of the Commerce Clause.  In fact, last year, the Corps adopted a new rule modifying the definition of the scope of waters covered by the Clean Water Act.  The rule is currently stayed, however, pending resolution of claims that it is arbitrary and capricious.  Under the Corps’ broad interpretation, these “waters” have included land that is occasionally saturated, when the use of the land “could affect interstate or foreign commerce.”  33 CFR § 328.3(a)(3) (2012).  The Corps has used this definition to assert jurisdiction over up to 300 million acres of swampy land.

Needless to say, the Corps’ expansive interpretation causes significant uncertainty about whether property constitutes “waters of the United States.”  If it does, then a party discharging pollutants on that property without a permit would be subject to penalties under the Clean Water Act.  Furthermore, section 404 permits under the Clean Water Act are very expensive.

To assist landowners, the Corps began issuing property owners an “approved jurisdictional determination” (“JD”), which states the Corps’ position on whether or not the property is part of the waters of the United States.  JDs are binding for five years.

In this case, a company, Hawkes, was interested in purchasing land in northern Minnesota to mine peat.  Hawkes applied to the Corps for a permit to begin extracting peat from the land.  The Corps told Hawkes that the permit process would be very costly and lengthy, and urged Hawkes not to buy the land.  To further discourage Hawkes, the Corps then submitted a JD which found that the land contained “water of the United States” because its wetlands had a “significant nexus” to a river 120 miles away.

Hawkes filed suit in court to challenge the JD that the land contained waters of the United States. The trial court dismissed the action and held that the JD was not a “final agency action” under the Administrative Procedure Act, and therefore it was not subject to judicial review. The Eighth Circuit reversed, holding that the JD was a final agency action and remanded the action for judicial review.  The Supreme Court unanimously agreed, holding that the Corps’ determination that property constitutes “waters of the United States” is a final agency action that is judicially reviewable under the Administrative Procedure Act.

The Court first considered whether a JD was “final” for purposes of the APA.  For agency action to be “final” under the APA, (1) the action must “mark the consummation of the agency’s decision-making process—it must not be of a merely tentative or interlocutory nature,” and (2) “the action must be one by which rights or obligations have been determined, or from which legal consequences will flow.”  The Corps did not dispute that the JD met the first element.  As to the second element, the Court found that JDs cause “direct and appreciable legal consequences”:  A JD that property did not contain waters of the United States would create “a five-year safe harbor” from Clean Water Act proceedings for a property owner.  A JD that property did contain waters of the United States would deny this safe harbor.  Thus, JDs in both cases have practical legal consequences.

The second inquiry the Court considered was whether there were adequate alternatives to reviewing the JD in court.  Under the APA, even if an agency action is final, it is reviewable in court only if there are no adequate alternatives to such review.  The Corps argued that Hawkes had alternatives: discharge fill material without a permit (risking an EPA enforcement action during which Hawkes could argue that no permit was required), or apply for a permit and seek judicial review if dissatisfied with the results.  The Court held that neither alternative was adequate, noting that “parties need not await enforcement proceedings before challenging final agency action where such proceedings carry the risk of serious criminal and civil penalties.”

The Court noted that if Hawkes had proceeded to discharge fill material without a permit, mistakenly believing that its property did not contain jurisdictional waters, it would be exposed to severe civil and criminal penalties.  The Court reasoned:  “Respondents need not assume such risks while waiting for EPA to “drop the hammer” in order to have their day in court.”  The Court also found that it was an inadequate alternative to have Hawkes apply for a permit, then seek judicial review of an unfavorable decision.  The Court noted that “the permitting process can be arduous, expensive, and long,” and that nothing in the permitting process alters the finality of the JD, or affects its suitability for judicial review.  In short, “[t]he permitting process adds nothing to the JD.”

Finally, the Court was unmoved by the fact that the two “alternatives” (seeking review of a JD in an enforcement action or at the end of the permitting process) would be the only available avenues for obtaining review if the Corps had never adopted its practice of issuing standalone JDs upon request.  “True enough,” the Court agreed. “But such a “count your blessings” argument is not an adequate rejoinder to the assertion of a right to judicial review under the APA.”

Accordingly, as a result of this decision, a party that is dissatisfied with the Corps’ determination of whether or not property constitutes “waters of the United States” is no longer confined to the equally undesirable options of incurring the time and expense of seeking a permit only to obtain judicial review of same or proceeding to engage in the activity without a permit at the risk of a potential EPA enforcement action.  Instead, the process is significantly expedited, as judicial review of the Corps’ determination is now immediately available under the Administrative Procedure Act.