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Ohio v. Department of the Interior

Citation: 19 ELR 21099
No. Nos. 86-1529 et al., 880 F.2d 432/30 ERC 1001/(D.C. Cir., 07/14/1989)

The court rules that portions of the Interior Department's "Type B" regulations for assessing natural resource damages under Comprehensive Environmental Response, Compensation, and Liability Act (CERCLA) § 107 and Federal Water Pollution Control Act (FWPCA) § 311(f) violate congressional intent, and remands the rules to the Interior Department for revision. The Type B regulations are protocols for individualized damage assessments, while Type A regulations, considered in a companion case, are simplified procedures requiring minimal field observation. The court upholds portions of the rules, but strikes down those portions that limit the measure of damages to the lesser of either the resource's restoration cost or the resource's lost-use value, as well as those portions that require that lost-use value be based exclusively on market prices when available.

The court first rules that the "lesser of" rule, requiring natural resource trustees to use the lesser of either costs of restoration or lost-use value of a resource, violates congressional intent. The court holds that the "precise question at issue," for purposes of determining the standard of judicial review, is whether the Interior Department is entitled to treat use value and restoration cost as having equal presumptive legitimacy as a measure of damages. Looking to the text and structure of CERCLA, the court first notes that § 107(f)(1)'s requirement that amounts recovered may only be used for restorative purposes underscores Congress' preference for restoration as a measure of damages, because lost-use value is not linked in any way to the cost of restoring, replacing, or acquiring the equivalent of a resource. Similarly, CERCLA § 107(f)(1) provides that damages "shall not be limited by" restoration costs, which carries an implicit assumption that restoration will be the basic measure in many cases. While the Interior Department has some discretion delegated by Congress, its latitude is limited by these congressionally expressed preferences. Moreover, though CERCLA's 1986 amendments ended the availability of the Superfund to pay for natural resource restoration, the provisions governing use of the Superfund remain on the books; CERCLA § 111(c) authorizes use of the Superfund for restoration of natural resources, and § 111(b)(2)(A) bars a trustee from using the Superfund until it has first exhausted other remedies to recover from liable parties. If lost-use value were the usual measure of recovery, this command would be impossible in most cases because lost-use value will usually be less than restoration cost. Similarly, § 122(j)(2) provides that a natural resource trustee may settle a case only if the defendant agrees to "protect and restore" the natural resources; this floor for settlements is further evidence of Congress' intent that restoration is the basic measure of natural resource damages. In the same way, CERCLA § 107(f)(1) forbids double recovery for restoration, again suggesting that restoration is the preferred measure. The FWPCA natural resource damage provisions, § 311(f)(4) and (5), to which the Department of Interior regulations also apply, expressly establish restoration as the standard measure of damages.

Turning from the statutory text to the legislative history, the court observes that the committee report and floor debates repeatedly emphasize restoration as the objective. Early versions of CERCLA considered by Congress distinguished between private recovery, based on lost use, and the government's broader rights of recovery. These provisions seem to have been copied from the Outer Continental Shelf Lands Act Amendments of 1978, where the measure of the government's recovery for natural resource damages is clearly the cost of restoration. In the 1986 CERCLA amendments, the House committee report emphasized that restoration was intended. The "lesser of" rule is really a rule of cost-benefit analysis that assumes that natural resources are fungible goods whose value can be measured, but Congress apparently rejected this premise. Although Congress in 1986 reenacted CERCLA after the Interior Department announced its intent to promulgate a "lesser of" rule, and Congress did not explicitly reject the rule in the text of the statute, this does not generate ambiguity where the statute was clear to begin with. Moreover, the 1986 legislative history makes clear Congress' dissatisfaction with the Interior Department regulations.

The court next remands to the Interior Department its interpretation of what privately owned resources are included in the definition of "natural resources." The court rules that purely private resources without any government connection are not covered under the CERCLA definition of natural resources, since the definition includes resources privately held by Indians, a clause that would be unnecessary if all privately held resources were included. Moreover, earlier drafts of CERCLA would have included private property, but Congress rejected these. However, CERCLA's definition of natural resources includes resources "managed by, held in trust by, appertaining to, or otherwise controlled by" a government, so that some resources that are privately owned could nonetheless be included. The Interior Department regulation repeats the language of the statute. While the preamble to the Interior Department regulation asserts that only resources actually owned by the government are included, at oral argument the Interior Department adopted a broader position that substantial government control could also bring a resource within the definition. Based on this conflict within the Interior Department's interpretation of its own regulation, the court remands for clarification.

The court next holds that the regulation's requirement that uses be "committed uses" to be included in the measure of damages is proper. The court notes that because "committed uses" only enter into the calculation of lost-use values, and because the court has struck down the "lesser of" rule, the committed use requirement will now only be relevant in calculating values lost during the interim period before restoration is complete.

Next, the court holds that the regulation's "hierarchy of assessment methods," making market value or appraisal value the only criteria for determining a resource's value when they are available, is an unreasonable interpretation of the statute. The regulation is not saved by its provision that non-market methodologies may be used when the market is not reasonably competitive; many resources can be traded in a competitive market yet still the market does not reflect the total use value of the resource. The court instructs the Interior Department to consider a rule that would permit trustees to sum up various use values while correcting for double counting.

The court upholds the regulation's 10 percent discount rate to be used in calculating the present value of a future injury. The basic concept of discounting is sound, as it reflects the time value of money. The decision of which discount rate to adopt is primarily a policy choice of the Interior Department and Office of Management and Budget. Moreover, the regulations provide that trustees should consider the possibility that the costs of resources and restoration will increase faster than the general price level in their valuation estimates. The court next upholds the regulation's provisions allowing potential defendants to prepare damage assessments so long as government officials approve the final assessment. The House committee report approved this possibility. The regulation is reasonable in authorizing the federal agency in charge of damaged federal property to authorize potential defendants to conduct the assessment even over the objections of state officials. Similarly, although potential defendants have more opportunity for notice and comment on the damage assessment than does the public at large, Congress did expressly provide for public involvement at some points and not others. The court next upholds the regulation's requirement that the cost of assessing the damage not exceed the damage itself.

The court upholds the regulation's "acceptance criteria" for demonstrating causation between the pollution and the damage, because CERCLA is ambiguous on this point. Early drafts of CERCLA would have explicitly liberalized causation tests in other contexts, demonstrating that Congress was aware of the issue but did not speak to it for purposes of natural resource damages. Moreover, the CERCLA § 107(a)(A) and (B) language creating liability for response costs does not include an explicit causation requirement, though § 107(a)(C), creating natural resource damage liability, does with the requirement that the damage be "resulting from" the release. The Interior Department has adopted a reasonable test for demonstrating causation. While the regulation's requirement that scientific analysis supporting causation be published in professional journals is unusually stringent, it is not an unreasonable policy choice. Similarly, the regulation's provision that general scientific studies are not compensable as costs of assessing natural resource damage is also not unreasonable. Likewise, the court upholds the Interior Department's regulations for accounting and planning procedures for amounts recovered. This is sufficiently close to assessing the damages as to be within the scope of the Interior Department's statutory authority, and does not intrude upon state sovereignty. The regulations need not include provisions for punitive damages; the text of CERCLA is silent on the issue, affording discretion to the Interior Department, and CERCLA's requirement that the "best available procedures" be used to measure compensatory damages would be unneeded if a rounded off punitive damage award were to be added to it.

Finally, the court upholds the regulation's procedures for calculating "contingent valuation," one of the measures of lost-use value. Contingent valuation involves setting up hypothetical markets through interviews with individual consumers. The Interior Department widely consulted the available literature on the topic, and though it may yield varying results, CERCLA applies to varying circumstances. The Interior Department responded to comments in preparing its contingent valuation provisions. Attaching a rebuttable presumption to the results of contingent valuation analysis does not violate the due process safeguards of the Constitution, because defendants have adequate opportunity to comment on the assessment and trustees have no personal incentives to bias assessments upwards.

[A companion case appears at 19 ELR 21127. The states' and environmental groups' brief appears at ELR PEND. LIT 65001.]

Counsel for Petitioners
Robert Abrams, Attorney General
Gordon J. Johnson, Andrea Green, Ass't Attorneys General
Environmental Protection Bureau, 120 Broadway, New York NY 10271
(212) 341-2459

Erik D. Olson
National Wildlife Federation
1400 16th St. NW, Washington DC 20036
(202) 637-3739

Counsel for Respondents
Laurence E. Blatnik, Margaret Kane Harrington
Land and Natural Resources Division
U.S. Department of Justice, Washington DC 20026-3986
(202) 633-2338

Before: WALD, Chief Judge, and ROBINSON and MIKVA, Circuit Judges.