Tuesday, June 25, 2013

Koontz drops: Heavy blows to common practices, but compensatory mitigation lives on.

Does wetland compensation even exist anymore?  The short answer is Yes, but it could be a rough ride.  And as a practice, it may be transformed.  (see update here).

It was definitely a major day at the Supreme Court -- while most of the country is reeling from the gutting of the Voting Rights Act, the Supremes also ruled for the first time on the issue of compensatory mitigation, in the case of Koontz v. St. John's River WMD.  Although the SC has ruled many times (Riverside Bayview, SWANCC, Rapanos...) on the issue of CWA jurisdiction and the "takings" issues around the assertion that wetlands are regulated, they have never considered the question of whether the government can condition a permit approval on the permittee doing some other thing, i.e., restoring, enhancing, creating or preserving aquatic resources to compensate for the permitted impact.  Is this requirement to compensate equivalent to the government extorting someone who is exercising a constitutional right to the use of their own resources?  That's the question.  Here's the opinion.

Let's go straight to the punchline.  A snappy 5-4 majority (Alito authoring majority opinion, Kagan the dissent) rules that the St. John's River WMD in Florida can NOT require a permittee to conduct certain kinds of compensatory mitigation as a condition of receiving the permit.  They don't find this because compensatory mitigation is inherently a takings -- far from it.  The majority goes out of their way to affirm the right of land-use management agencies to require fees and practices to ensure that landowners "internalize the negative externalities of their conduct," the damages they might cause through their development actions.  They do require, however, that any permit conditions follow the Nollan/Dolan precedents of having a "nexus" with, and being "roughly proportionate" to, the impact being sought by the permittee. [SJRWMD is the respondant here, not the Corps -- but SJRWMD is the permitting agency for the state's wetland protection program, and is doing exactly what the Corps does for the federal CWA, so the case is pretty much foursquare with and applicable to CWA permitting].  Here's the money quote:
"Under Nollan and Dolan the government may choose whether and how a permit applicant is required to mitigate the impacts of a proposed development, but it may not leverage its legitimate interest in mitigation to pursue governmental ends that lack an essential nexus and rough proportionality to those impacts."
Ok, so compensatory mitigation lives.  But certain kinds of common mitigation practices now appear to be highly endangered.  Let's think about what some of them might be -- and here we have to be very speculative because the majority's opinion ABRUPTLY ENDS at exactly the point where you expect them to say what it is about the SJRWMD's compensation requirements that do not meet the standards of nexus and rough proportionality.  All we know is what we can gather from their specific disapproval of the facts in the Koontz case: SJRWMD's compensation package appears to violate the Nollan/Dolan standard, and what seemed bother the majority was a) the required improvement was on state-owned land, which Alito none-too-subtly frames as a kind of corrupt rent-seeking on the part of the state agency; b) it was somewhat distant from the impact site (I'm reading in between the lines here -- I'm simply noting Alito's repeated observation that the compensation site was "several miles away", as if this is a problem) and; c) it involved much more acreage of compensation than the proposed impact: the WMD suggested 13.9 acres of preservation and 50 acres of enhancement as a condition for a 1-acre impact. 

These are the things that give Alito a sad.

So let me stress that this is all extremely speculative, because the opinion gives us very little to go on.  But a preliminary reading of Koontz is that compensation can be legal, but may violate the takings clause where it a) redounds to the direct benefit of the permitting agency or authority, b) is more than "several miles" from the impact site, and c) involves far more acres of compensation than impact.  Compensation of these kinds apparently have no "nexus" with the impact, and no "rough proportionality" with it.  In the language of a later takings case (Lingle), they apparently have "little or no relationship" with the impact.  This is all very revealing of the often-stark differences between what a government or court can recognize as "related" and what an ecologist or geomorphologist might recognize as "related".


First off, compensation on public lands appears to be sliding off the table.

Secondly, the question of "how far away is too far" might have a whole new set of answers, and compensation that is just within the 6-digit (or 3-field) HUC watershed could easily be considered "too far away" to have a nexus with the impact site. This might seriously endanger the business plans of thousands of stream and wetland mitigation banks, who rely on a large service area to provide them with clients seeking wetland and stream credits.  That's a huge deal.

Thirdly, the use of high mitigation ratios (for compensation that involves preservation, or impacts to difficult-to-restore resources) might be a problem now.  The majority frames the issue of proportionality as a problem of acreage, but with the increasing move to functions-based measurement of both impacts and compensation, their language seems obsolete.  Could the SJRWMD require a 10:1 acreage ratio if it turned out that the functions being replaced were "roughly proportionate"?  It's easy to imagine an agency arguing that a high acreage ratio is required to achieve "rough proportionality."  But will they dare, if a lawsuit might erupt?

The majority's reluctance to be specific about what constitutes a taking in this case is especially unfortunate, notes Kagan in dissent, because of the chilling effect it will have on all permitting discussions.  If no one is sure what might get them hauled to court on a takings charge, no state or federal official will risk suggesting compensation alternatives at all.  "Perhaps [the majority's opinion's] most striking feature is its refusal to say even a word about how to make the distinction that will now determine whether a given fee is subject to heightened scrutiny."  And this: "If a local government risked a lawsuit every time it made a suggestion to an applicant about how to meet permitting criteria, it would cease to do so."

At first glance, in-lieu fees look like they might be in trouble, since, following the general trend of the Court since the 1980s, Alito holds any loss in value, money, or net worth to be equivalent to a physical seizure of land (bringing to mind Scalia's favorable quotation in Lucas v. SCCC of the old principle "What is the land but the profits thereof?").  And you'd think that it would be hard to guarantee a nexus between some future ILF-funded compensation site and the impact at hand.  But actually I think ILFs dodge the bullet here: "...this case does not implicate the question of whether monetary exactions must be tied to a particular parcel of land in order to constitute a taking."

There's a final consequence that is most unexpected, and emerges with a unified voice from both the opinion and the dissent: permits should be denied.  Denying a permit because it impermissably damages protected resources is no problem, constitutionally -- this has been established since Riverside Bayview, and is reaffirmed today.  Agencies only get into problems when they start approving permits but requiring "extortionate" conditions.  Here's Alito:
"Where the permit is denied and the condition is never imposed, nothing has been taken."
Here's Kagan:
"Consider the matter from the standpoint of the [SJRWMD]'s lawyer.  The District, she learns, has found that Koontz's permit applications do not satisfy legal requirements.  It can deny the permits on that basis; or it can suggest ways for Koontz to bring his applications into compliance.  If every suggestion could become the subject of a lawsuit under Nollan and Dolan, the lawyer can give but one recommendation: deny the permits, without giving Koontz any advice -- even if he asks for guidance."
Well, give them all credit for recognizing that the CWA, as originally passed, never contemplated compensation as a remedy for impacts.  The 1972 Act is quite clear: in case of unacceptable adverse impacts to waters of the US, the Corps should deny the permit; in those rare cases where permits are issued which allow significant adverse impacts, the EPA should use its 404(c) power to veto the permit.

 11 Reasons Why Jennifer Lawrence Is Your BFF in Your Head
That'll happen.

Of course, what actually happens is that the Corps approves more than 99% of all permits that are not withdrawn, and the EPA has issued only about 15 vetos since the veto regulations were finalized in 1980.  The entire architecture of compensation policy built since 1977, and grounded in regulations from 1980 and 2008, lacks an explicit basis in the letter of the Act (although the general statutory and regulatory basis is plenty strong).  But the compensation option was an essential political compromise and an essential pressure valve for the CWA, allowing development to occur, permits to be issued, and environmental protection to be achieved.  And, like it or not, it's how the program now works.  Any major restriction of compensation as a regulatory practice could strongly and negatively impact the entire program.  The Supremes saying that permit denial is the best way to avoid takings problems is a big deal.

Ok -- but how did Alito and the boys arrive at this point?  I'm no lawyer, and you'd be better off reading SCOTUSblog's post, but here's what it looks like to me:

The majority's theory is based on the "unconstitutional conditions doctrine" which, applied in Nollan and Dolan, holds that the government cannot coerce people into giving up constitutionally-guaranteed (property) rights in the process of applying for land-use permits.  Here's a crux of the case: the majority believes that the government "pressur[ing] an owner into voluntarily giving up property," by attaching conditions to an approved permit, is the same as physically seizing property in its ability to trigger a 5th Amendment problem.  They're saying that substituting a permit condition for an outright seizure is simply an evasion.  Kagan, on the other hand, believes that giving a permittee several options in complying with Florida statute is not the same as a seizure of property unrelated to a defined statutory obligation. 

Kagan further points out that questions about how regulations change the cost profile for an action which is, itself, approved are best resolved under (at least) Due Process considerations of whether the government's action is arbitrary and capricious, or (at most) Penn Central considerations of whether or not the permittee's "investment-backed expectations" have been frustrated.  No need, she says, to get to a Nollan/Dolan analysis of nexuses and proportionality.  To my eyes, this is the strongest part of the dissent and something to which Alito has no real answer.

But here we are again: once again, as with Rapanos, Corps and EPA (and now, everyone else) are directed to devote untold resources and time to find and define the "nexus" between the impact and the regulatory action.  The difficulty/impossibility of doing so will not stop the elaboration of a legal theory that is profoundly at odds with the daily practicalities of environmental regulation and ecological science. 

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