Wetlands & Recent Case Law: Twin Eagle & Other Recent Decisions

This paper will discuss a recent state case and a line of federal cases pertaining to wetlands. The state case is Twin Eagle, LLC v. Indiana Department of Environmental Management and Lori Kaplan in her Official Capacity as Commissioner, Cause No. 49F12-0107-CP-002490 ("Twin Eagle"). The federal cases result from the United States Supreme Court’s decision in Solid Waste Agency of Northern Cook County v. U.S. Army Corp of Engineers, 531 U.S. 159, 121 S. Ct. 675,148 L. Ed. 2d. 576 (2001) ("SWANCC"). The focus will not be on the SWANCC decision, but rather on reported decisions interpreting that opinion. As part of your materials relating to the state case, there is attached a copy of Judge Michael D. Keele’s February 11, 2002 decision in Twin Eagle. Also enclosed are copies of Judge Keele’s Order Granting Emergency Stay, the Indiana Department of Environmental Management’s ("IDEM") Motion to Transfer Appeal to the Indiana Supreme Court Prior to Consideration by the Indiana Court of Appeals, Twin Eagle’s response thereto, and the Order of the Indiana Supreme Court accepting transfer, dated April 11, 2002.

A little background on Twin Eagle will be helpful in understanding the issues to be decided by the Indiana Supreme Court. Twin Eagle is the owner of approximately 460 acres of real property in Allen County,

Indiana, which it intended to develop as a residential subdivision. The property included 14.75 acres of wetlands and private ponds that were not "waters of the United States" and 6.77 acres of wetlands and open channels that were "waters of the United States". Subsequent to the SWANCC decision, the United States Army Corps of Engineers ("Corps") issued a letter confirming Twin Eagle’s determination that the 14.75 acres were not "waters of the United States", and therefore not within the Corps’ jurisdiction.

Prior to the SWANCC decision in January 2001, which decision effectively excluded "isolated wetlands" from the Corps’ jurisdiction, Indiana, as did most states, regulated such wetlands pursuant to §401 of the Clean Water Act, 33 USC §1251 et seq. ("CWA"). In response to SWANCC, IDEM released a memorandum dated April 11, 2001 to "Interested Persons" announcing IDEM’s intention to develop an " interim regulatory process" to continue protection of water resources affected by SWANCC. On June 5, 2001, IDEM issued another memorandum stating its intention to "use IDEM’s authority" pursuant to the National Pollutant Discharge Elimination System permitting program and apply it to wetlands, including its intention to "pursue enforcement actions" against those persons who fail to comply. IDEM elaborated on these two memoranda in a press release entitled "Topic Paper: Creation of a State Wetlands Program in the Wake of SWANCC v. United States Army Corps of Engineers". On July 1, 2001, IDEM published these two memoranda in the Indiana Register.

In light of the "interim regulatory process" announced by IDEM, Twin Eagle brought an action for declaratory judgment seeking relief from IDEM’s "interim regulatory process". Specifically, Twin Eagle sought relief establishing that: (1) IDEM’s newly asserted "interim regulatory process" and NPDES permit requirement constituted improper rulemaking and was ultra vires; (2) IDEM could not require Twin Eagle to seek a NPDES permit for activity that impacted only isolated, non-navigable wetlands or private ponds; (3) IDEM had no independent regulatory authority under its existing regulations or any state law over private ponds and isolated wetlands that are not "waters of the United States"; and (4) private ponds and isolated wetlands are not "waters of the state" subject to IDEM’s jurisdiction. As further explained below, the Court found in favor of Twin Eagle on all points and also held that IDEM could not bring an enforcement action for the discharge of dredged or fill material into private ponds or wetlands that were not "waters of the United States".

In response to Judge Keele’s Order, IDEM sought and obtained an Emergency Stay Order, the effect of which will be discussed later in this paper. As noted above, IDEM and Twin Eagle also sought judicial review directly to the Indiana Supreme Court which transfer was accepted.

1. IDEM's new permit program under NPDES was not promulgated according to statutory requirements for new rules.

2. IDEM’s authority under NPDES is limited to navigable waters and therefore does not apply to isolated wetlands and private ponds.

There is, unfortunately, no statutory or regulatory definition as to what constitutes a "private pond". However, existing Indiana case law provides guidance and the Legislature is deemed to have been aware of the common law when it enacted its definition of "waters of the state". The Indiana Supreme Court has defined a "private pond" to be, "[a] body of water wholly upon the lands of a single owner, or of a single group of joint owners or tenants in common, which does not have any connection with any public waters such that fish could pass from one to the other." State v. Lowder, 198 Ind.234 (1926). See also, Sanders v. DeRose, 207 Ind. 90, (1932) and Trowbridge v. Torabi, 692 N.E. 2d. 622, (Ind. App.1998). In dicta, the Lowder court also referred to a private pond as a body of water that is not greater than 20 acres in area and is wholly located on the land of any landowner.

Similarly, wetlands are also not "waters of the state". First, they are not specifically included in the definition of "waters of the state". Secondly, wetlands are not even defined in any of IDEM’s existing water quality regulations. Twin Eagle argued that to the extent isolated surface water accumulates within a wetland area, those surface waters take on the characteristics of a pond and are therefore excluded under the "private pond" exclusion. To the extent no surface water accumulates, then wetlands are not "waters" or more particularly, "waters of the state".

After dismissing IDEM’s Motion to Dismiss, which was premised on various jurisdictional grounds, Judge Keele turned to the cross-motions for summary judgment filed by the parties. Judge Keele first found that IDEM’s creation of the "interim regulatory process" falls squarely within the definition of rulemaking. IDEM had argued that the "interim regulatory process" was only a clarification of existing rules. However, the Judge noted IDEM acknowledged in its memorandum the need for new rules governing isolated wetlands activities after SWANCC. The Judge said there would be no need to "establish" a state wetland permitting program, as IDEM had stated in its Indiana Register notice and press release, if in fact one already existed.

Secondly, the Water Board, not IDEM, had authority to adopt rules for the control and prevention of pollution into waters of Indiana, and the Water Board failed to comply with the statutory requirements. Therefore, IDEM’s adoption of the "interim regulatory process" was ultra vires and unlawful.

With respect to IDEM’s scope of authority under the Indiana NPDES program, the Court found that the new NPDES permit requirement was inconsistent with both the Indiana statutory authority and IDEM’s own rules implementing that program. The Indiana NPDES permit, by virtue of limitations imposed by the provisions of the CWA which created IDEM’s NPDES jurisdiction, is thereby limited to discharges regulated under that statute. The CWA regulates only discharges into "navigable water" as that term is defined under the CWA, and attempting to regulate waters that are outside the definition of "navigable water" under the CWA results in IDEM’s "interim regulatory process" and its NPDES wetland permit requirements being ultra vires and void because they exceed the statutory regulatory authority for IDEM’s NPDES program.

Having found IDEM had lost its jurisdiction over isolated wetlands under the CWA as a result of SWANCC, and because he found IDEM could not legally regulate isolated wetlands under its NPDES program, Judge Keele next turned his attention to IDEM’s argument that it had such power under existing state law. The Court, noting first that even if he were to find in IDEM’s favor on this point it would not cure IDEM’s flawed rulemaking, nevertheless found that IDEM had no such independent authority. The Court found that "private ponds" were clearly excluded from "waters of the state", and that 12.2 acres of the 14.75 acres of non-CWA waters fell into the private pond category. IDEM argued that under the definition of "waters of the state" IDEM had the authority over a private pond whose discharge caused or threatened to cause water pollution. By definition under Indiana law, however, the Judge ruled a private pond is isolated and has no "discharge". The modifying phase relied upon IDEM for its authority only applied to facilities which were built for the reduction or control of pollution.

Finally, the Judge discussed the issue as to whether wetlands fell within the definition of "waters of the state". The Judge stated that "if a ‘private pond’ is not a water of the state, then a private unconnected wetland body less than a pond is not one either." (emphasis in original) The Court stated further "it is not plausible to exclude private ponds but include more transient private wetlands as ‘waters of the state’. To the extent a wetland has standing water it is a pond…. If it does not have standing water it is not an ‘accumulation of water’ and cannot be a ‘water of the state’". Despite IDEM’s claims it had long regulated wetlands, the Court found that IDEM could not identify any non-NPDES regulations, programs, or rules covering isolated wetlands that had been properly promulgated or implemented.

After Judge Keele’s Order, IDEM filed for an Emergency Stay Pending Appeal and also its Notice of Appeal. In its Motion, IDEM cited the core issues as (1) whether the trial court had jurisdiction since there was no actual controversy between the parties; (2) whether IDEM’s Notice of "interim regulatory process" is rulemaking; (3) whether IDEM’s interpretation of the statutes and rule is reasonable and (4) whether the trial court can reverse a reasonable statutory interpretation made by the agency. IDEM argued that given the breadth of the Court’s decision, there is nothing to prevent a person from permanently and irreparably damaging isolated wetlands by filling them and that a stay of his decision was vital to the state’s interests.

As noted earlier, Judge Keele granted the Stay, which has resulted in a dilemma for the regulated community. IDEM has interpreted the Emergency Stay Order as one which allows it to move forward as if Judge Keele’s decision had never been handed down. IDEM is still requiring the NPDES permit and continues to threaten enforcement against those who do not comply. In fairness to IDEM, the agency had little choice. If, as is usually the case when a stay order is issued pending appeal, the stay requires that all parties stand still, then from IDEM’s perspective the Stay would be meaningless. Notwithstanding IDEM’s determination to continue to enforce its "interim regulatory process", some practitioners take the viewpoint that given the strength of Judge Keele’s decision and his underlying basis for it, their clients have little fear of the "interim regulatory process" ever being effectively enforced. Add to that the recent passage of HB 1306 and the Water Board’s statutorily imposed moratorium on any new rules related to isolated wetlands and private ponds, and the regulated community is fairly confident that the risks of enforcement are minimal until such time as either the Legislature takes the issue up next year or the Indiana Supreme Court rules in IDEM’s favor.

There have been numerous decisions interpreting SWANCC since the United States Supreme Court handed down its opinion on January 9, 2001. This paper will focus on only the most recent decisions, since these cases offer the best insight into the current state of wetland law after SWANCC. In general, it should be noted there is still no general agreement among the courts which have ruled on the Corps’ authority post-SWANCC. It does appear that the courts in the Seventh Circuit, which circuit governs the State of Indiana as far as federal law is concerned, have taken a very conservative viewpoint and have been reluctant to limit the Corps’ authority. On the other hand, courts in many other circuits have interpreted the Supreme Court’s decision more broadly and continue to cut away at the Corps’ authority over what constitutes "waters of the United States".

In 1996, the United States Environmental Protection Agency ("EPA") filed a civil complaint alleging defendants had violated the CWA by causing unlawful dredging and filling of wetlands. Rather than go to trial, the defendants entered into a Consent Decree in early 1999, whereby they agreed to cease unlawful discharges, restore the property’s wetlands and pay a civil penalty. For a variety of reasons, the defendants failed to comply on a timely basis with the terms of the Consent Decree. Although defendants contended that they had met all of the substantive requirements, the government filed a complaint to enforce the Consent Decree and also sought stipulated penalties for failure to meet the requirements in accordance with the specified dates set forth in the Consent Decree. The trial judge awarded penalties in the amount of $4,018,500.¹

The defendants argued that because the wetlands at issue were "isolated", the SWANCC decision prevailed and the EPA had no jurisdiction to enforce the Consent Decree. However, the Court ruled that the wetlands were "adjacent" to navigable waterways and, therefore, were in fact jurisdictional wetlands. The judge stated the wetland "has an affect on flows to Dyer Ditch, and ultimately the Little Calumet River. The Little Calumet River is itself a navigable waterway. A drop of rainwater landing in the Site is certain to intermingle with water from the Little Calumet River. The relationship between the wetland and a navigable waterway is direct. The Site, therefore, has the ‘significant nexus’ to a navigable waterway necessary to trigger…regulatory jurisdiction under CWA §404(a)." Upon defendants’ Motion to Alter or Amend Judgment, the judge vacated that portion of his ruling "that the Site is an ‘adjacent wetland’". In fact, in his decision dated February 21, 2002, the judge found the Site was an "isolated wetland". United States v. Rueth Development Company, et al. 189 F. Supp. 2d 874 (2002 U.S. Dist. LEXIS 3483). The judge’s original ruling was based upon what he believed was an agreement among the parties that the wetland was an "adjacent wetland". Even after agreeing with the defendants, however, that there was no such agreement, the judge nevertheless stated "water molecules that collect in a wetland ultimately come in contact with water molecules from" the navigable water. In spite of the fact the site in question was an "isolated wetland", the judge concluded that since the defendants had voluntarily entered into the Consent Decree, the EPA had jurisdiction over the defendants and could enforce the provisions of the Consent Decree. The case is currently under appeal to the U.S. Court of Appeals for the Sixth Circuit.

Key Points: (1) only need tenuous contacts; and (2) Consent Decree will apply even if no underlying jurisdiction.

This particular case is on remand from the United States Supreme Court and the U.S. Court of Appeals for the Sixth Circuit. Following the Supreme Court’s decision in SWANCC, the Supreme Court remanded this case for "reconsideration in light of our decision" in SWANCC. The importance of this case is that, unlike SWANCC, this case was not premised on the "Migratory Bird Rule", but instead relied on the broader "dredge and fill" provisions of the CWA. The Supreme Court directions appear clear that they believe their decision in SWANCC is broader than just the Migratory Bird Rule.

In order to make his property more marketable, the defendant in Rapanos cleared a heavily wooded lot and filled wetlands without a permit, all of which wetlands were located entirely within his own property. He was subsequently convicted, sentenced to three (3) years probation and ordered to pay a substantial fine. As the judge noted upon remand, the definition of "navigable water" is central to this case. At his original trial, neither the jury nor the trial court had found the defendant’s wetlands were connected to "navigable waters of the United States". On remand, however, the judge specifically took evidence on this issue and on whether the wetlands had a "significant nexus" or were directly "adjacent" to navigable waters. The government argued there was a "surface hydrological connection" to a ditch, which eventually leads to Saginaw Bay some twenty (20) miles from the wetland. The judge cited United States v. Riverside Bayview Homes, Inc. (474 U.S. 121, 1985), noting that that case and the SWANCC decision still upheld jurisdiction under the CWA where the wetlands are directly adjacent to a navigable water. After hearing the evidence, the judge held that as a matter of law, the government was unable to prove that defendant, whose land and wetlands were located roughly twenty (20) miles from the nearest body of navigable water, affected any navigable waters, or that they were directly adjacent to navigable waters. The judge reversed defendant’s conviction.

Key Points: (1) not a "Migratory Bird Rule" case; (2) hydrological connection not enough; and (3) government needs to establish affect on navigable water.

This is a case from Illinois, in which the defendant built a small road across wetlands without a Corps permit. The wetland resulted from a cut drainage tile. Eventually a drainage ditch was excavated to carry water away from the wetlands, which ditch ended at a delta area that led to a creek, and eventually flowed into the Fox River, a navigable interstate waterway. The defendant contended that the ditch was a non-continuous "meandering drainage swale", that the ditch actually ended fifty (50) feet short of the swale, and the ditch was intermittent, dependant upon rain events in wet seasons in order to have water in it.

The court discussed the Corps’ authority post-SWANCC and began by acknowledging the Court of Appeals for the Fifth Circuit decision in Rice v. Harken Exploration Co., 250 f.3d 264 (5^th Cir. 2001), which decision had expanded SWANCC beyond the "Migratory Bird Rule". In Rice, the Court of Appeals held "it appears a body of water is subject to regulation under [the Act] if the body of water is actually navigable or is adjacent to an open body of navigable water." The trial judge agreed with the government’s position that this statement by the Fifth Circuit is "probably only dicta". The trial court then stated that it appeared the "remainder of courts considering the issue have reached the opposite conclusion: that SWANCC struck the Migratory Bird Rule, pushing ‘isolated waters’ that may affect interstate commerce out of the Corps’ jurisdiction, without altering the Corps’ reach where its jurisdiction is based on a water’s use or potential use as a channel of interstate commerce." (emphasis in original)

In addition to citing an early case from the Ninth Circuit Court of Appeals, the judge cited six lower court decisions, including two in the Seventh Circuit. One of the cases cited by the judge was the Rueth decision discussed above; however, the judge relied on the September 25, 2001 decision and not the decision dated February 21, 2002, in which the judge effectively vacated part of his earlier decision. Relying partly on pre-SWANCC decisions, the court concluded that SWANCC did not limit the Corps’ jurisdiction to navigable water and wetlands adjacent thereto, and that a tributary need not have a direct connection, but can be linked through other connections two or three times removed from a navigable water and still be subject to the Corps’ jurisdiction. "Water need not flow in an unbroken line at all times to constitute a sufficient connection to a navigable water or its tributaries…", according to the Court. "Adjacent" does not depend on the type of water flow or connection between types of water bodies stated the Court. The mere fact that the waters touch at some point means they are contiguous. Accordingly, the wetlands at issue were within the Corps’ jurisdiction.

Key Points: (1) Court ignored other recent decisions; (2) Court relied on vacated Rueth decision; (3) Court relied on pre-SWANCC decisions; (4) Court ignored ‘significant nexus’ requirement; and (5) intermittent ditches sufficient to establish jurisdiction.

In one of the most recent and discoursive decisions to interpret SWANCC, the District Court for the Eastern District of Virginia ruled the Corps did not have jurisdiction over wetlands containing nearly 40 acres of non-tidal, forested wetlands. According to the court, "only by multiple drainage ditches, a culvert under a highway, and miles of non-navigable waters are the wetlands on the Property even remotely connected to navigable waters or a water body capable of use by the public for purposes of transportation or commerce." The judge concluded there was no evidence that any pollution, other than silt from "clean fill", exited the site nor that any of the silt actually reached any natural watercourse or caused harm to the Chesapeake Bay or any of its "natural" tributaries. In reaching this decision, the judge took particular note of Justice Stevens’ dissent in SWANCC that the majority opinion in that case had drawn a new jurisdictional line that excluded "all waters except for actually navigable waters, their tributaries and wetlands adjacent to each." SWANCC at 176. In a footnote to his dissent, Justice Stevens observed that after SWANCC, "Phase 3" waters, which include isolated waters such as intermittent rivers, streams, tributaries and perched wetlands that are not contiguous or adjacent to navigable waters, were excised from the scope of the CWA. SWANCC at 188. The judge disagreed that the ditches and drains qualified as "waters of the United States". The Corps had relied exclusively on "surface water connection" or "hydrological connection" for its jurisdiction, although neither of those terms are included in the Corps’ regulations. "[W]ere the Court to allow this ‘surface water connection’ to suffice for jurisdiction, any property connected by a drainage pipe or culvert to navigable waters would fall under the Corps’ jurisdiction", for the Corps argues "that a culvert or storm drainage pipe connection from wetlands to a tributary to navigable waters is a sufficient surface water or hydrological connection." In fact, the Corps argued that a culvert or storm drainage pipe meets the Corps’ newest definition of a tributary. The judge held that this position was completely arbitrary. Among its findings, the Court held that it was "not Congress’ intent to vest the discretion in the Corps to decide on a case-by-case basis which ditches constructed partially through dry lands and which culverts should be defined as tributaries to waters of the United States."

Key Points: (1) the Corps 1974 regulations are more consistent with the intent of Congress than the 1986 regulations; and (2) ditches and storm water drains are not "tributaries" under the CWA.

^{1. For example, the civil penalty of $23,500 was due within thirty (30) days of the entry of the Consent Decree, but was paid sixty-seven (67) days late, resulting in a stipulated penalty awarded by the Court of $122,500.}