National Wildlife Federation v. Marsh

No. 82-3632 (D.D.C. December 17, 1984)

The court rules that the Army Corps of Engineers' inclusion of a broad grandfather clause in their October 5, 1984 Federal Water Pollution Control Act § 404 regulations does not violate a settlement agreement reached in this case, 14 ELR 20262. The court first notes that administrative agencies, when implementing regulatory changes, often include grandfather provisions to avoid the inequity of retroactive application of regulations. Next the court rules that the grandfather provision does not constitute a breach of the settlement agreement since that agreement does not expressly prohibit defendants from providing an equitable transition to the new regulations. Instead, the court determines, the grandfather clause provides a reasonable, fair transition to the new general permits for those dischargers that substantially and justifiably relied upon the July 1982 general permits and, therefore, ensures against a retroactive application of defendants' regulations that would result in manifest injustice to such dischargers. In accordance with the terms of the settlement agreement, the court dismisses all but four of the counts in the complaint with prejudice.

Counsel for Plaintiffs
James T. B. Tripp
Environmental Defense Fund, Inc.
444 Park Ave. S., New York NY 10016
(212) 686-4191

Jerry Jackson
National Wildlife Federation
1412 16th St. NW, Washington DC 20036
(202) 797-6800

Hope M. Babcock
National Audubon Society
645 Pennsylvania Ave. SE, Washington DC 20003
(202) 547-9009

Counsel for Defendants
Victoria O'Meara
Office of the General Counsel
Department of the Army, Washington DC 20310
(202) 697-5127

Catherine A. Winer
Office of the General Counsel
Environmental Protection Agency, Washington DC 20460
(202) 382-7703

William M. Cohen, Nancy Bryson, James Spears, Robert D. Daniel
Land and Natural Resources Division
Department of Justice, Washington DC 20530
(202) 633-2704

Counsel for Defendants-Intervenors
Mark G. Weisshaar, Turner T. Smith Jr., Michael B. Barr, Charles D. Ossola
Hunton & Williams
P.O. Box 19230, Washington DC 20036
(202) 955-1500

[15 ELR 20116]

JOHNSON, J.:

Memorandum Opinion

Plaintiffs, a consortium of environmental groups, brought this suit challenging, inter alia, two general permits issued by the Army Corps of Engineers which authorized dischargers to place fill material into certain wetlands in the United States. Plaintiffs contend that the permits violate section 404(e) of the Clean Water Act, 33 U.S.C. § 1344(e). On February 10, 1984, this Court approved and entered a settlement agreement developed by the parties through long and arduous negotiations as a practical compromise of the differing interests in this litigation. Under the terms of the settlement agreement, the Department of the Army and its Corps of Engineers were to have submitted to the Federal Register and promulgated certain regulations embodying the measures agreed upon and specified in the settlement agreement. Under this agreement, the Army Corps of Engineers promised to publish regulations that, among other things, would alter the basic standards for reviewing and conditioning individual permits and dramatically limit the scope of the headwaters and isolated waters general permits. In exchange, the plaintiffs agreed to forego their right to challenge the interim final regulations.

Plaintiffs now contend that no such regulations have been published to date and that, therefore, the federal defendants have breached the settlement agreement. Plaintiffs contend that instead on October 5, 1984, the Army Corps of Engineers promulgated final regulations that carry out certain of the measures agreed upon in the settlement agreement, but that they fail to carry out certain other key measures by "grandfathering" certain classes of persons from compliance with the new regulations. The case is presently before the Court on plaintiffs' motion for declaration of breach of settlement agreement. For the reasons stated below, the plaintiffs' motion will be denied.

Under the terms of the settlement agreement, the final regulations were to have made two modifications to the two general permits. First, any discharge activity that would substantially adversely affect ten or more acres of wetlands or other waters of the United States would not be allowed to proceed under authority of the two challenged general permits, but would instead be required to be authorized by an individual Corps permit. Second, any discharger whose discharge activity would substantially adversely affect one or more acres (but less than ten acres) of wetlands or other waters of the United States would be required to give advance written notice of his intention to discharge pursuant to either of the two challenged permits.

Plaintiffs contend that neither the ten-acre absolute limitation nor the one-acre prior notice requirement has been effectively carried out in the final regulations. Rather, plaintiffs contend that the regulations contain a major exception to the regulatory scheme contemplated by the settlement agreement by including a "grandfather clause" which exempts certain dischargers from the ten-acre absolute limitation and the one-acre special notification requirements. Plaintiffs allege that under the final regulations the exempted dischargers include those whose discharges were in progress when the new regulations took effect, others who had only contracted to do so, still others who had neither commenced discharging nor contracted to do so prior to the final regulations but who need only persuade a Corps district engineer that they made investments toward some future discharge in reliance on the permits that the settlement agreement sought to change. Plaintiffs contend that under the new regulatory scheme, the general public does not have an opportunity to participate in the decision whether to allow a discharge to continue under the grandfather clause. Plaintiffs express concern that the discharges may not be environmentally sound since the decision to allow a discharge to continue would be based only on whether the discharger has met the criteria for the grandfather clause with no concern to the environmental impact.

In support of their motion for declaration of breach of settlement agreement, plaintiffs allege that the rulemaking record does not support the inclusion of the grandfather clause exception into the final regulations; that the Corps' action in including the grandfather provision is arbitrary when viewed in the light of the Corps' past practice in regulating section 404 discharges; that the public was never given notice of the Corps' intent to include a grandfather clause exception in the final regulations; and that dischargers [15 ELR 20117] are not entitled to a claim of justifiable reliance on the general permits. Plaintiffs further contend that promulgation by the federal defendants of regulations in accordance with the settlement agreement and without the grandfather clause would not have resulted in promulgation of regulations with retroactive effect. Rather, plaintiffs contend that under the settlement agreement, the new regulations would apply only to discharges occurring after October 5, 1984, the promulgation date of the regulations.

In opposition to plaintiffs' motion for declaration of breach, the federal defendants contend that they have met the terms of the settlement agreement; that the use of the phase-in grandfathering exception was to assure no inequity in the transition from one regulatory scheme to another; and that the grandfather clause procedure is an accepted administrative practice. The federal defendants further allege that the final rules promulgated on October 5, 1984, apply to prospective discharge activities and were thus an administrative statement with only future effect. The federal defendants also aver that because the settlement agreement in this case did not address the issue of grandfathering previously authorized discharges, that provision is wholly beyond the scope of the settlement agreement.

Defendant-intervenors Alabama Power Company, et al., American Mining Congress, Colorado Water Congress, Florida Phosphate Council, Inc., and Farmland Industries, Inc. contend that the regulatory amendments promulgated by the Corps on October 5, 1984, fully implement the settlement agreement in every respect and that the use of the grandfather clause provision avoids manifest injustice to existing permittees. The intervenors also participated in the settlement negotiations and allege that the parties never intended an instantaneous stopping of all discharge activity on the date the final regulations were promulgated.

In order to avoid the inequity of retroactive application of regulations, regulatory transition procedures, including grandfathering and phase-in provisions, are not uncommon when administrative agencies make regulatory changes. See Sierra Club v. E.P.A., 719 F.2d 436, 464 [13 ELR 21001] (D.C. Cir. 1983). The fundamental criterion for determining whether a statute, regulation, or interpretation may be applied retroactively is one of reasonableness. Pennzoil Co. v. DOE, 680 F.2d 156 (Temp. Emer. Ct. App. 1982). Generally speaking, retroactive rules are valid if they are reasonable, but are invalid if their retroactivity is unreasonable in the circumstances. The Court must weigh the mischief which might follow if the rule is denied retroactive effect, thereby producing a result contrary to statutory design or legal and equitable principles, against the ill effect of retroactive application of the new rule. Among the factors weighing in the balance are the extent to which a party has relied on previously settled law and the burden which the retroactive rule would impose on a party. United States v. Exxon Corp., 561 F. Supp. 816 (D.C.D.C. 1983).

The Court determines that the sole basis of plaintiffs' allegation of breach of the agreement is their claim that the Corps breached the agreement by including in the final regulations a limited "grandfather" procedure that allows parties who can objectively demonstrate justifiable reliance on the former general permits to complete their discharge activities within the next 18 months. Under the narrow grandfather provision, permittees may continue activities authorized by their current general permits for only another 18 months and then only after (1) notifying the Corps, (2) proving substantial reliance on the general permit, and (3) receiving Corps approval. The provision also requires Corps oversight of all dredging and fill activities during the 18 month period and gives the Corps authority to require an individual permit at any time under appropriate circumstances.

The Court further determines that the settlement agreement contained no express prohibition on the Corps' ability to provide such an equitable transition. Rather than a breach, the grandfather clause provision allows for a reasonable, fair transition to the new general permits for those permittees who have substantially relied upon the prior valid general permits. The Court finds that to require these dischargers who have relied on the Corps' former regulatory scheme to now obtain an individual permit would be a retroactive application of the Corps' regulations which would result in a manifest injustice. See Buccaneer Point Estates, Inc. v. United States, 729 F.2d 1297, 1299 [14 ELR 20406] (11th Cir. 1984). The dischargers were justified in relying upon the general permits which have been in effect since July 1982 and have allowed unlimited discharges with no individual permits required. Because the new rule is stricter than the rule on which the permittees relied in the past, the grandfather clause allows a reasonable period during which the permittees operating under the general permits prior to October 5, 1984, would seek an individual permit if they cannot complete their present activities within that 18 month period. In reliance on the existing general permits, dischargers have made capital investments, entered into contracts, and begun projects that involve dredge and fill activities authorized by the general permits. To require these dischargers to abruptly halt or delay their projects while an individual permit is sought would constitute manifest injustice to those dischargers who have relied on the previous regulatory scheme and the strength of the general permits. Reliance interests should be weighed heavily in the shaping of equitable remedies. Lemon v. Kurtzman, 411 U.S. 192 (1973).

Based upon the foregoing and because the use of the grandfather provision in the final regulations promulgated on October 5, 1984, does not constitute a breach of the settlement agreement of February 10, 1984, but instead provides a provision to minimize inequitable impacts on previously authorized projects, plaintiffs' motion for declaration of breach of settlement agreement must be denied. An Order consistent with this Memorandum Opinion will be entered this date.

Order

Upon consideration of the motion of plaintiffs for declaration of breach of settlement agreement, supporting and opposing memoranda, and after full argument by all parties in open court, and consistent with the Memorandum Opinion of even date, it is this 14th day of December, 1984.

ORDERED that the motion of the plaintiffs for declaration of breach of settlement agreement, be, and it hereby is, denied; and it is further

ORDERED that plaintiffs' complaint be, and it hereby is, dismissed with prejudice pursuant to paragraph 7 of the settlement agreement (except for Counts XI, XII, and XIII which were agreed to be dismissed without prejudice, and Count XV which is to be disposed of separately pursuant to paragraph 24 of the settlement agreement).