Interpreting the regulations under which the U.S. Army Corps of Engineers (Corps) may approve mitigation banks for use by permit holders under the federal Clean Water Act (CWA), the U.S. District Court for the Middle District of Florida has held that the regulations vest district engineers with substantial discretion to approve modifications that reduce the size of a mitigation bank, provided that the reduction adheres to the applicable ecological performance standards and is necessary to ensure an environmentally and economically viable mitigation bank. [Sierra Club v. St. Johns River Water Management District, ___F.Supp.3d___, Case No. 6:14-cv-1877 (M.D. Fl. Aug. 13, 2018).]

Background

Under the Clean Water Act § 404 permitting process the Corps may issue permits for activities that impact the waters of the United States (33 U.S.C. § 1344(b)(1)), while requiring that the applicant:

• . . .address how impacts to waters of the United States will be minimized, avoided, and—where impacts are unavoidable—how they will be mitigated. 33 C.F.R. § 325.1(d)(7). . . .Mitigation activities can be accomplished by the permittee or can be accomplished through the purchase of mitigation credits from a mitigation bank. § 332.3.

The code goes on the state that “The goal of the rule is to ensure permanent protection of all compensatory mitigation project sites.” 73 Fed. Reg.19594.

The Farmton Mitigation Bank (Bank or FMB) was established in Florida in 2000 pursuant to the Clean Water Act compensatory Mitigation Rule, 33 C.F.R. § 332. Mitigation banks are required:

• . . .to have a banking instrument as documentation of agency concurrence on the objectives and administration of the bank. The banking instrument should describe in detail the physical and legal characteristics of the bank, and how the bank will be established and operated. 60 Fed. Reg.58605,02(C)(2).

A mitigation bank “instrument [a MBI] is a ‘legal document for the establishment, operation, and use of a mitigation bank.’” 33. C.F.R. 332.2.

The Bank’s MBI established it as including “more than 24,000 acres of wetland and upland habitat, making it one of the largest federal wetland mitigation banks in the country.”

The Bank “was segmented into three distinct but hydrologically connected sites,” with mitigation activities implemented on the sites in phases. It operated as follows:

• Once all mitigation tasks for a particular phase were completed, mitigation credits for that portion of the Bank were generated and available for purchase. As mitigation credits were sold pursuant to the … section 404 compensatory mitigation program, conservation easements were recorded on the corresponding parcels of land in the FMB. The [St. Johns River Water Management District] is the grantee of all the conservation easements recorded on the FMB. As of March 2017, approximately 4,338.92 mitigation credits have been generated and released for sale. Of those available credits, only 363.728 have been withdrawn to mitigate for permitted impacts to waters of the United States. (Id.). The [Corps] . . . postu[lates] that the low credit sales at the FMB “may be a result of the [ ] economic downturn [from 2007 through 2009] as well as the availability of mitigation credits at other Corps-approved mitigation banks with overlapping mitigation service areas.(Internal citations omitted.)

The MBI recognized that it was not clear how many mitigation credits the market could support, therefore it provided that the Bank “reserves the right to removed unused portions of the bank (those areas without Conservation Easements in place) from the bank.”

In 2010 the Bank applied to withdraw 860.22 acres, comprised of 374.77 acres of wetlands and 110.68 acres of uplands from its boundaries so that the withdrawn area could be included in “the surrounding Framton Local Plan—a long-term development plan approved by Volusia and Brevard Counties.”

The land proposed to be removed had not been used to mitigate for any impacts to water of the United States, and thus had not been preserved by a recorded conservation easement. The Corps approved modification to the MBI following a notice-and-comment period and the Sierra Club filed suit. The Corps moved to remand in order to “conduct a more thorough environmental assessment under the National Environmental Policy Act,” and following the completion of that analysis the parties launched cross-motions for summary judgment.

The District Court’s Decision

Intent of the Mitigation Rule

The District Court rejected the Sierra Club’s arguments that the modification to the Bank’s MBI violated the intent of the Mitigation Rule to prohibit modifications with the effect of reducing the size of a mitigation bank. The Sierra Club’s most direct argument was that the modification “is contrary to the site-protection requirements of the Mitigation Rule.” The Mitigation Rule achieves its “fundamental goal” of site protection by requiring that:

• . . .[t]he aquatic habitats, riparian areas, buffers, and uplands that comprise the overall compensatory mitigation project must be provided long-term protectionthrough real estate instruments or other available mechanisms, as appropriate. 33 C.F.R. § 332.7(a)(1) (emphasis added in the opinion).

The District Court held this language does not prohibit the Corps from approving a modification to a banking instrument “that reduces the overall size of the” bank, because:

• . . .[t]his interpretation does not consider the large degree of discretion the drafters of the Mitigation Rule intentionally left to the district engineer in approving modifications to existing MBIs. Citing 33 C.F.R. § 332.7(c)(1).

In fact, when facing public criticism that the Mitigation Rule leaves too much discretion to the district engineer, the drafters explained that “it is necessary to provide the district engineer with the authority to determine whether remediation measures are appropriate and practicable.” 73 Fed. Reg. 19594, 19607. The drafters repeatedly refer to the flexibility allowed to the Corps and the district engineer in administering mitigation activities, noting that the “rule appropriately balances the need for consistency with the need for flexibility.” 73 Fed. Reg. 19594, 19609.

Thus, the court held it:

• . . .more likely. . .that the district engineer. . .can approve modifications to the boundaries of an approved mitigation bank, if that modification adheres to the ecological performance standards set forth in the Mitigation Rule.Citing 33 C.F.R. § 332.5

The Mitigation Rule and Modifications to Mitigation Bank

The Sierra Club, citing 33 C.F.R. section 332.4(c)(7), also argued:

• . . .that the Mitigation Rule ‘patently precludes modification s to the FMB that authorize removal of land from the FMB, which at a minimum alters the boundaries of the bank.

That section of the Mitigation Rule requires mitigation banks to have a mitigation work plan, including:

• Detailed written specifications and work descriptions for the compensatory mitigation project, including, but not limited to, the geographic boundaries of the project; construction methods, timing, and sequence; source(s) of water, including connections to existing waters and uplands; methods for establishing the desired plant community; plans to control invasive plant species; the proposed grading plan, including elevations and slopes of the substrate; soil management; and erosion control measures.

As the District Court noted, the Rule:

• . . .requires the creation of a mitigation plan that includes the geographic boundaries of the mitigation bank. However, the Court finds nothing in this language that would prohibit [the Corps] from approving a modification of those geographic boundaries if necessary to achieve an environmentally and economically viable mitigation bank.

Conclusion and Implications

The record in this litigation appears to have been very thin, perhaps because the Sierra Club was seeking a rule that would prohibit any reduction in the size of a mitigation bank, irrespective of whether the agency had relied on substantial evidence in approving the reduction. However, applicants for modifications to mitigation banking instruments should ensure that the agency proceeds on a record providing substantial evidence to support that the modification “adheres to the ecological performance standards of the Mitigation Rule,” and that the modification is “necessary to achieve an environmentally and economically viable mitigation bank.”

(Deborah Quick)