On July 30, the United States District Court for the Eastern District of North Carolina decided Rose Acre Farms, Inc. v. North Carolina Department of Environment and Natural Resources, No. 14-cv-147, 2015 WL 4603950. The court dismissed the plaintiff's action for declaratory judgment, holding that it lacked subject-matter jurisdiction over the claim and, alternatively, that it would refrain from exercising discretion to review the claim under the Declaratory Judgment Act. The court's decision is significant not only in the Clean Water Act context, but also in cases challenging state permitting decisions in other "cooperative federalism" regulatory regimes under which significant permitting authority is delegated to the states.

The plaintiff in Rose Acre Farms operates an egg farm. As required by state law, the plaintiff constructed a detention pond to control surface water. The detention pond, located near a hen house, also picks up small amounts of dust, feathers, and manure. While it does not directly discharge into state or federal waters, the detention pond periodically discharges accumulated precipitation and debris into a nearby canal. Therefore, the state environmental agency required the plaintiff to obtain a National Pollutant Discharge Elimination System ("NPDES") permit under the Clean Water Act.

The plaintiff challenged the permit requirement in multiple forums. First, the plaintiff sought relief in a state administrative challenge. After failing to obtain relief there, but while its state action was still pending, the plaintiff sued in federal court, seeking an order declaring that any incidental discharge qualifies as agricultural stormwater and is therefore exempt from NPDES requirements, and that the state agency cannot require Rose Acre to obtain an NPDES permit. The federal court declined review, holding it lacked subject-matter jurisdiction.

The federal court acknowledged that state law governed the NPDES permitting process in North Carolina, and determined that the only possible source of its jurisdiction over such a claim would be if the claim fell within a "special and small category of cases" where state law "implicate[s] significant federal issues." Id. at *3. The court identified two Supreme Court cases governing this doctrine that impose a four-factor test: Gunn v. Minton, 133 S. Ct. 1059 (2013); and Grable & Sons Metal Products, Inc. v. Darue Engineering & Manufacturing, 548 U.S. 308 (2005).

Ultimately, the court found one crucial requirement under these cases lacking, holding that exercising jurisdiction over the plaintiff's claim would disturb a "congressionally approved balance of federal and state judicial responsibilities." Id. at *6 (quoting Grable, 545 U.S. at 314). Looking to the Clean Water Act's "cooperative federal-state structure," the court determined that "Congress chose state courts to be the means by which parties may challenge state permitting decisions" and purposefully decided "not to create a federal right of action." Id. at *7. The court distinguished Rose Acre Farms from other cases where courts found federal jurisdiction because the legal regime at issue in those cases lacked a "formal federal-state partnership" that "explicitly allows and encourages states to create their own permitting schemes," id. at *8, and dismissed the case for lack of subject-matter jurisdiction. (In the alternative, the court declined to exercise declaratory-judgment jurisdiction because North Carolina's courts have a strong interest in reviewing the state NPDES permitting process, because the suit would create "unnecessary entanglement" between federal and state courts, and because the plaintiff had already litigated the same issue in state court and was engaging in "procedural fencing" by turning to federal court as well.)

This decision highlights the importance of the cooperative federalism framework that Congress incorporated into the Clean Water Act and numerous other federal environmental laws. As the court indicated, a state "has a strong interest in having its courts review the state . . . permitting process." Id. at *10. Federal court review of the state permitting process would upset Congress's intention for "states to have 'primary responsibilities and rights . . . to prevent, reduce, and eliminate pollution.'" Id. (citing 33 U.S.C. § 1251(b)). This principle is applicable not only where a regulated party is a plaintiff, but also where a party is defending a state-issued permit in federal court. This case, as do other recent similar cases, signals that federal courts are unwilling to allow a plaintiff to bypass the state review process even where an issue of federal law exists. See, e.g., 16 Front St. LLC v. Mississippi Silicon, LLC, No. 1:14-CV-00183-DMB, 2015 WL 4665223 (N.D. Miss. July 30, 2015); Nucor Steel-Arkansas v. Big River Steel, LLC, No. 3:14CV00193 JLH, 2015 WL 791108 (E.D. Ark. Feb. 25, 2015).*

*EDITOR'S NOTE: BakerHostetler attorneys are handling the Mississippi Silicon and Big River Steel cases. For more information about that suit, please contact Martin Booher or the other members of BakerHostetler's Environmental team.

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