United States: Avoiding Wetland Liability Isn't Always Cut And Dried

Last Updated: January 10 2017
Article by Phillip Hinerman

John Duarte, CEO of Duarte Nurseries of Tehama County in California, saw several hundred acres that could be farmed after years of cattle grazing. Less than a year after his nursery bought the property, a representative of the U.S. Army Corps of Engineers ordered that he stop plowing up "vernal pools."

Enter the legal process. Duarte and his company filed suit alleging that his due process rights had been violated. The Army Corps counterclaimed alleging that both he and his company violated the clean streams law.

In June, 2016, a federal judge in the Eastern District of California considered mutual motions for summary judgment on the legal issues presented by the parties. That judge set off a storm in the agricultural community by ruling that both Duarte and Duarte Nurseries could be held liable for Clean Water Act penalties and set up a penalty hearing. Duarte has told reporters that the Army Corps is seeking to fine him $2.8 million in direct penalties and to require him to spend $8 to 10 million to purchase 60 wetlands credits.

Duarte attempted to appeal the June 2016 decision but it is now back in district court as no final judgment had been issued to be reviewed on appeal. The penalty phase is coming soon.

His example points out the need to consider the effect that wetlands may have on development plans prior to purchasing or developing property. Here, Duarte had an engineer map out what they thought the wetlands were on the farm property. However, they apparently were not followed by the person who plowed over vernal pools.

So, if you don't know what a "vernal pool" is, you are in the company of many people. The Army Corps has long believed these pools are wetlands. A vernal pool is a temporary pool of water where things can seasonally grow. The Corps has long stated that lands can be wetlands if they "are inundated or saturated by surface or ground water at a frequency and duration sufficient to support, and that under normal circumstances do support, a prevalence of vegetation typically adapted for life and saturated soil conditions."

So, how do people who don't know what a vernal pool is determine whether they own property with wetlands? The Corps looks at:

  • Whether the property has typical plants that exist in wetlands, discussed in the National Wetland Plant List available online;
  • Whether or not water stands or sits at or above soil surface during a growing season. In other words, wetlands can exist for part of the year and still be considered regulated;
  • Whether there are typical soils found in wetlands, like peat; and
  • Whether areas are typically flooded by tides.

Obviously, if Duarte is like most people, he does not have the training to determine what fits these categories. In fact, if he purchased the property during a dry season, he may not have seen anything indicating a wetland. However, either knowingly developing these areas or ignoring the signs of vernal pools could well put a company out of business and bring on personal liability.

What constitutes wetlands and who can be liable?

This is an area for real debate. The U.S. Supreme Court in Rapanos v. United States, 547 U.S. 715 (2006), showed strong judicial disagreements about the role of wetlands under the Clean Water Act. That decision, a 4-4-1 decision, was decided on the most narrow ground possible — the fifth vote being cast only for the result, not the legal explanation. That vote, by Justice Anthony Kennedy, and its reasoning has been adopted by a number of courts as the "significant nexus" test — wetlands can be regulated if there is a significant nexus to a waterway.

The California district court judge also concluded that Duarte knew that there were wetlands on his property and that he had "authority over the tillage operations" even though he used someone else to operate the equipment. Under the Clean Water Act, the judge ruled that he could be personally liable even though the nursery owned the property and another person did the plowing.

What should you do to avoid this issue?

Most people are familiar with using a standard form ASTM phase one as a tool to evaluate the environmental condition of property to be acquired. Many do not know that those audits expressly exclude a review of wetlands as part of the scope of work. Also, when you review land and deed records, wetlands are not normally identified. So, what should you do before you buy to be sure you will not be restricted on using your property?

You may want to consult with a trained wetlands delineator. These individuals review the property, the surroundings streams and water bodies. They use the methods that are employed by the Army Corps to identify areas that will likely be considered to be wetlands. That delineator should also review site records of the prior owners and talk with the current owner about areas you intend to develop.

You should also consider, during purchase negotiations, getting formal statements from the seller about his knowledge of wetlands. You can ask also about areas where standing water may be at different times of the year. Finally, you can check Army Corps records online to see if there are known wetlands.

Even that may not be enough. The Corps has not evaluated all wetlands and is constantly adding new ones. If you close on property and then discover areas where there may be wetlands, you may still be able to develop the property. The Corps can be asked to make one of two determinations regarding wetlands.

The Corps make a verified "preliminary jurisdictional determination" of wetlands if you provide initial information on the site. This is not binding on the Corps as it is only a desktop review of the property. Still, it can quickly alert you of a potential problem.

There is also a more formal determination called a "jurisdictional determination" from the Corps. This typically takes several months and the Corps actually visits the site with representatives trained to identify wetlands. A Corps jurisdictional determination can be considered final. But, if wetlands are found where you want to develop, you can still get a permit to develop them, but that can be a costly and long process requiring you to purchase offsets.

As always, this area of the law is changing. New political administrations may review wetlands differently. But, be diligent and realize that you need to plan around any questionable areas.

Originally published by Law360

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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