Deference to agency decisions under the abuse of discretion test has its limits, as illustrated by this Clean Water Act case in which the U.S. Army Corps of Engineers (Corps) failed to include in the administrative record of is jurisdictional determination site-specific testing results to support its findings the artificially-created wetlands at issue would have a significant pollution effect on navigable water of the United States, and also failed to include in the record the National Wetlands Inventory map on which the agency relied for its “similarly situated” finding. [Orchard Hill Building Co. v. U.S. Army Corps of Engineers, 893 F.3d 1017 (7th Cir. 2018).]

Background

The plaintiff homebuilder, Orchard Hill, purchased “the Warmke parcel, a 100-acre former farm-land located in Tinley Park, Illinois,” in 1995, and subsequently obtained authorization to build “a two-phase residential development on the parcel.” The parcel is surrounded by residential development. The closest navigable water to the Warmke parcel is the navigable-in-fact Little Calumet River, which is 11 miles away:

• In between the Warmke wetlands and the Little Calumet River are man-made ditches, open-water basins, sewer pipes, and the Midlothian Creek—a tributary of the Little Calumet River.

From 1996 through 2003, Orchard Hill build “more than a hundred homes” in the first phase of development. Construction altered the area’s water drainage, and about 13 acres pooled with rainwater and grew wetland vegetation. “[T]he Warmke wetlands drain[], by way of sewer pipes, to the Midlothian Creek.” Before starting the second phase and building on those acres—the Warmke wetlands—Orchard Hill sought a jurisdictional determination from the Corps in 2006 that the wetlands are not “water of the United States subject to regulation under the Clean Water Act, 33 U.S.C. § 1251 et seq.

That application unfurled “[a] braid of regulatory, judicial, and administrative events” leading to the Corps asserting jurisdiction over the Warmke wetlands on the basis a determination that “the Warmke wetlands were adjacent to” Midlothian Creek, “and thus waters of the United States.”

During the pendency of Orchard Hill’s administrative appeal from the Corps’ 2006 jurisdictional determination, the U.S. Supreme Court decided Rapanos v. United States, 547 U.S. 715, 126 S.Ct. 2208 (2006). Justice Kennedy’s concurring opinion, held controlling by the Seventh Circuit in United States v. Gerke Excavating,Inc., 464 F.3d 723, 724–25 (7th Cir. 2006), held that “adjacency to a tributary of a navigable-in-fact water is alone insufficient to make the wetland a water of the United States,” and that:

• . . .the Corps’ jurisdiction over [such] wetlands depends upon the existence of a significant nexus between the wetlands in question and navigable waters in the traditional sense. Rapanos, 547 U.S. at 779, 126 S.Ct. 2208.

The Corps issued internal guidance in 2008 (Rapanos Guidance) interpreting “similarly situated lands” to mean all “wetlands adjacent to the same tributary,” because “such wetlands are physically located in a like manner.” It instructs the Corps to determine first if any such adjacent wetlands exist, and if so, to:

• . . . consider the flow and functions of the tributary together with the functions performed by all the wetlands adjacent to that tributary in evaluating whether a significant nexus is present.

The Corps’ division engineer remanded the 2006 jurisdictional delineation to the district engineer for further review in light of Rapanosand the Corps’ internal guidance. In the course of that review the district engineer visited the site and “observed an ‘intermittent flow’ of water from the Warmke wetlands to the Midlothian Creek.” He:

• . . .did not test or sample the Warmke wetlands’ composition, but based on the observed hydrological connection. . .concluded the Corps had jurisdiction over the wetlands.

In a subsequent confirmation of this determination, the district engineer listed:

• . . .165 wetlands purportedly ‘adjacent’ to the Midlothian Creek and thus ‘similarly situated’ to the Warmke wetlands per the RapanosGuidance.

This record was found insufficient by the division engineer in the ensuing administrative appeal, who remanded to the district engineer for what would be the Corps “final approved jurisdictional determination for the Warmke wetlands.” On remand the district engineer issued an 11-page report that asserted that the 165 wetlands considered were all a part of the “Midlothian Creek watershed,” though it did not describe that term or map that area. The supplement further explained the significant flooding problems the Tinley Park area had faced in recent years, and, relying on scientific literature and studies, detailed how wetlands help reduce floodwaters. It also described the effect of wetlands generally on reducing pollutants in downstream waters, and the wildlife that inhabited the Warmke wetlands.

The Corps’ final jurisdictional determination concluded that the Warmke wetlands “alone or in with the area’s other wetlands, have a significant nexus to the Little Calumet River.” The district court affirmed the Corps’ determination, deferring to the agency’s:

• . . .conclusions regarding the physical, chemical, and biological impact of the Warmke wetlands on the Little Calumet River.

The Seventh Circuit’s Decision

Applyingde novo review (Laborers’ Pension Fund v. W.R. Weis Co., 879 F.3d 760, 766 (7th Cir. 2018)), the Seventh Circuit considered whether the record before it contained substantial evidence that “a reasonable mind might accept as adequate to support the [agency’s] conclusion”(Zero Zone, Inc. v. U.S. Dep’t of Energy, 832 F.3d 654, 668 (7th Cir. 2016)), or whether the Corps’ determination “r[an] counter to the evidence before the agency, or [was] so implausible that it could not be ascribed to a difference in view or the product of agency expertise.”

Regarding the Corps’ determinations that the Warmke wetlands on their own “significantly affect the chemical, physical, and biological integrity of ‘waters of the United States.’  The agency first found that the wetlands:

• . . .have the ‘ability’ to pass pollutants to the Little Calumet River, because “wetlands are ‘nature’s kidneys,’ able to filter out pollutants that would otherwise reach downstream waters. Northeastern Illinois waters are known to suffer relatively high rates of nitrogen, and the Warmke wetlands have a ‘discrete and confined intermittent flow’ to the Midlothian Creek. The court held this “‘speculative’ finding cannot support a significant nexus,” citing Rapanosfor the proposition that “‘conditional language’ like ‘potential ability’ may ‘suggest an undue degree of speculation, and a reviewing court must identify substantial evidence.’” 547 U.S. at 786.

The Corps also found that the loss of Warmke wetlands would lead to an increase in floodwaters in the Midlothian Creek watershed, as well as an increase in downstream nitrogen, supporting a finding that the Warmke wetlands alone significantly affect the chemical, physical, or biological integrity of Midlothian Creek, itself a tributary of the Little Calumet River. But both of these findings were based on the agency’s assertion that the Warmke wetlands:

• . . .are the fourth largest wetlands in the area, making up 2.7 percent of the 462.9 total acres of the wetlands in the Midlothian Creek watershed.

Thus, while the loss of allthe wetlands in the watershed would lead to a 13.5 rise in floodwaters “loss of the Warmke wetlands would result in a floodwater rise of a fraction of a percent.” The Corps also estimated a rise of 27-51 percent in the amount of nitrogen entering Midlothian Creek from the loss of all of the wetlands within the watershed, but did not test the Warmke wetlands for the presence of nitrogen. Even assuming the presence of nitrogen in the Warmke wetlands:

• . . .they, again, make up just 2.7 percent of the watersheds’ total wetlands, and so would presumably account for a small fraction of that increase to the Midlothian Creek (to say nothing of the increase to the navigable-in-fact River).

In light of this “insubstantial” impact (Rapanos, 547 U.S. at 780), the Court held that “if the Corps thinks otherwise it must provide its reasoning.”

The Corps’ alternative findings that the Warmke wetlands “in combination with similarly situated lands in the region” have a sufficient impact on the Little Calumet River to support jurisdiction, per the Rapanos Guidelines’ interpretation of “similarly situated” to mean “all wetlands adjacent to the same tributary.” All of the Corps’ similarly-situated findings were based on 165 wetlands the Corps asserted are all adjacent to Midlothian Creek, based on a National Wetlands Inventory map entitled “Tinley Park, Illinois Quadrangle, 1981,” that was not itself made a part of the record. The court observed that the title of the map “hardly suggests a focus on Midlothian Creek,” and the record was devoid of any other information supporting “how wetlands in the same watershed are, ipso facto, adjacent to the same tributary,” as required by the Rapanos Guidelines:

• [T]he so-called Midlothian Creek watershed is 12,626 acres—almost 20 square miles—and that considerable size belies any assumption that lands within the watershed are necessarily, or even likely, adjacent to the Creek.

The court went on to conclude:

• The significant-nexus test has limits: the Corps can consider the effects of in-question wetlands only with the effects of lands that are similarly situated. Rapanos, 547 U.S. at 780. To do as the Corps did on this record—to consider the estimated effects of a wide swath of land that dwarfs the in-question wetlands, without first showing or explaining how that land is in fact similarly situated—is to disregard the test’s limits. Whatever the degree to which the Corps must defend each and every wetland it considers, its approach according to the record was plainly deficient.

Conclusion and Implications

The Seventh Circuit’s failure to defer to the agency here was not attributable to any evolution in judicial standards; rather, the Corps’ jurisdictional determination was undermined by the agency’s failure to provide a legally adequate record. Applicants tempted to take heart from the outcome here should beware: these same record deficiencies can doom a development permit challenged by third parties.

(Deborah Quick)