Fourth Circuit Parts Company with Other Federal Appeals Courts in Significant Wetlands Decision

On December 23, 1997, a three-judge panel of the United States Court of Appeals for the Fourth Circuit overturned the criminal convictions of Maryland developer, James J. Wilson, Interstate General Company and St. Charles Associates. United States v. Wilson, 133 F.3d 215, (4th Cir. 1997). Wilson and the two corporate co-defendants had been convicted on four felony counts of knowingly discharging fill material into wetlands without a permit under the Clean Water Act (CWA), 33 U.S.C. §§ 1319(c)(2)(A) and 1311(a). Wilson was sentenced to 21 months in prison, one year supervised release and fined $1 million. The corporate entities were fined $3 million and placed on five years probation. The lower court also ordered the defendants to implement a wetlands restoration and mitigation plan.

In overturning the conviction, the Court limited the jurisdiction of the Army Corps of Engineers over isolated wetlands and the types of activities regulated under Section 404 of the CWA, 33 U.S.C. § 1344, and remanded the case for a new trial. While the decision to reverse and remand was concurred in by all three judges, their reasoning differed on several key issues. Nonetheless, this decision could have immediate ramifications for activities undertaken in wetlands in the states covered by the Fourth Circuit (Maryland, Virginia, West Virginia, North Carolina, and South Carolina), and has the potential to have collateral impact in circuits that have not yet reached the question of the Corps' jurisdiction.

Background

James J. Wilson, a land developer with over 30 years of experience, was CEO of Interstate General, which is a general partner of St. Charles Associates. Wilson was responsible for the development of a 9,100 acre planned community in an area between the Chesapeake Bay and Potomac River.

In February 1996, during a seven week jury trial, the government introduced evidence that between 1988 and 1993, Wilson oversaw a project that involved digging ditches, draining and then depositing a substantial amount of fill on three parcels of land that contained physical characteristics that identified them as wetlands. A third wetlands parcel, which was not filled, was drained using a technique that deposits the excavated dirt next to the ditches in a process known as "sidecasting." The government charged that the defendants were aware that these parcels contained the physical characteristics of wetlands and were in fact warned by private consultants and local zoning authorities that their stabilization efforts required permits. In addition, the government offered evidence that despite attempts to dry the parcels via ditching, draining and filling, wetlands loving plants continued to sprout through the stone and gravel fill. The jury rejected the defendants' contradictory evidence on the Corps' jurisdiction and that the Corps may have been aware for years of these ongoing activities. Following 15 hours of deliberation, the jury convicted all defendants on four felony counts of knowingly discharging a pollutant into the waters of the United States.

On appeal, the defendants challenged the authority of the Corps to regulate the four parcels in question. The Fourth Circuit appeals court reversed the district court's decision and remanded the case for a new trial on the basis of several important holdings.

Discussion

Although the three-judge panel was divided on several of the major findings, this decision ultimately reached some important results in regards to four issues: (1) what is the reach of the Clean Water Act under the Commerce Clause; (2) what constitutes an "adjacent" wetland; (3) what is the scope of the Clean Water Act's regulation of "pollutants;" and (4) what is the intent standard for a "knowing" violation.

Commerce Clause Jurisdiction

The defendants challenged the district court's instruction to the jury that a connection with interstate commerce is established as a matter of law if the jury found that the wetlands "were or could be used" by visitors from other states, for industrial purposes, as a source for shellfish for interstate sale, or that their degradation could affect interstate commerce. Writing for the majority, Judge Niemeyer struck down the Corps' regulation that was the source of this instruction, which defines the term "waters of the United States" to include those waters (including wetlands) whose use or degradation "could affect" interstate commerce. See 33 CFR 328.3(a)(3) (1993). Niemeyer relied on a recent Supreme Court decision interpreting the Commerce Clause of the Constitution, United States v. Lopez, 514 U.S. 549 (1995), in holding that the regulation is far too broad in allowing the Corps to assert jurisdiction in a way that expands the term "waters of the United States" beyond its definitional limit.

Although conceding that under Lopez Congress has the power to regulate the discharge of pollutants that "substantially affect interstate commerce," Niemeyer concluded that the instruction "intolerably stretches" the Corps' jurisdiction "to include wetlands remote from any interstate or navigable water." The majority opinion states that:

The regulation requires neither that the regulated activity have a substantial affect on interstate commerce, nor that the covered waters have any sort of nexus with navigable waters or even interstate waters. Were the regulation a statute, duly enacted by Congress, it would present serious constitutional difficulties because, at least at first blush, it would appear to exceed Congressional authority under the Commerce Clause.

This interpretation of the scope of the Commerce Clause appears to be much more narrow than the holdings of at least two other circuits. Prior to Lopez, in Hoffman Homes v. U.S. EPA, 999 F.2d 256 (7th Cir. 1993), the U.S. Court of Appeals for the Seventh Circuit revisited an earlier decision and held that the EPA had improperly imposed a $50,000 administrative penalty. The court found that the EPA had properly interpreted the CWA when the Agency issued regulations giving jurisdictional authority over isolated, interstate wetlands(based on their effect on interstate commerce(due to their possible function as habitat for migratory birds.1 The court concluded that an actual connection to interstate commerce was not necessary, but rather, a "potential rather than actual, minimal rather than substantive" connection was all that was required. See 999 F.2d 261. However, in a narrow fact-bound ruling, the court held the penalty was improper because the agency had failed to show by substantial evidence on the record as a whole that migratory birds had ever used the isolated wetland. The EPA was required to demonstrate upon remand that the specific wetland was actually used by migratory birds, which people crossed state lines to hunt, trap or observe. The broad interpretation of the "could affect" nexus to the Commerce Clause offered in Hoffman Homes was not considered by the Wilson majority.

The Ninth Circuit has also given the Commerce Clause a broader reading. In Leslie Salt Co. v. United States, 55 F.3d 1388 (9th Cir. 1995), cert. denied, 116 S. Ct. 407 (1995), the Ninth Circuit addressed whether the Corps could prohibit the filling of evaporation pits a company had created for salt manufacture. The Ninth Circuit adopted Hoffman Homes and accepted the Corps' argument that its jurisdiction could reach isolated wetlands due to the actual presence of migratory birds on the property.

While the Supreme Court denied certiorari, Justice Thomas, in a highly unusual step, issued a separate dissent, stating:

This case raises serious and important constitutional questions about the limits of federal land use regulation in the name of the Clean Water Act that provide a compelling reason to grant certiorari in this case. These questions were left open in United States v. Riverside Bayview Homes, Inc., 474 U.S. 121 (1985), and should now be resolved.

116 S. Ct. at 409 (Thomas, J. dissenting).

Recently, a federal district court in Illinois relied upon Hoffman Homes and Leslie Salt to distinguish Wilson and hold that the Commerce Clause authorizes the Corps to regulate isolated wetlands that serve as habitat for migratory birds. See Solid Waste Agency of N. Cook County v. Corps of Engineers, No. 94-C-7489, 1998 U.S. Dist. LEXIS 3994 (N.D. III. March 25, 1998). Although conceding that Lopez gives reason to question the validity of the migratory bird rule, and noting that Wilson suggests that it may be unconstitutional, the court concluded that it "does not agree that Lopez places the regulation of intrastate migratory bird habitats beyond the reach of federal commerce clause jurisdiction." Again, however, the court required the actual presence of migratory birds and did not address the distinction between "actual" and "potential" effects on interstate commerce. The Supreme Court has yet to address the issue of the extent of the Corps' jurisdiction after Lopez.

Adjacent Wetlands

Building upon his Commerce Clause argument, Judge Niemeyer found that the trial judge had improperly instructed the jury that the filled wetlands were properly within the Corps' jurisdiction over waters that are "adjacent" to waters of the United States.

Niemeyer made particular note of the fact that "the wetlands at issue were more than ten miles from the Chesapeake Bay, more than six miles from the Potomac River, and hundreds of yards from the nearest creeks." Therefore, "[i]t was error for the district judge to have instructed the jury to extend the jurisdiction of the Clean Water Act to wetlands that lack any direct or indirect surface connection to interstate waters, navigable waters, or interstate commerce." In so holding, Judge Niemeyer distinguished this case from the Supreme Court's 1985 decision, United States v. Riverside Bayview Homes, Inc., 474 U.S. 121,133 (1985), where the Court determined that Congress intended the Clean Water Act to allow for regulation of adjacent wetlands that would not be deemed "navigable" in the traditional sense. Although conceding that Riverside Bayview permits the regulation of non-navigable wetlands that are adjacent to waters of the United States, Judge Niemeyer noted that this does not do away with the requirement that there be a nexus with interstate commerce. Niemeyer narrowly characterized Riverside Bayview as being decided in the context of a wetland "that actually abuts a navigable waterway," and concluded that the jury instructions of the district court improperly failed to require at least some connection to waters of the United States.

Judge Payne disagreed with Judge Niemeyer's focus on the necessity of finding a surface connection to prove adjacency. He noted that a hydrologic connection could exist where, for example, a "berm separated the other waters . . . from the wetlands" or where an intermittent stream provides "a surface connection only at certain times." In his view, it was not error to instruct the jury that "[a] wetland may be adjacent even without a direct or indirect surface connection to other waters of the United States." Judge Payne disagreed with Judge Niemeyer's interpretation of Riverside Bayview, noting that the Court's "opinion as a whole refutes the idea that there must be a surface connection to establish adjacency." Judge Luttig voiced no opinion on this issue. Thus, the issue of what hydrologic connection is necessary to establish adjacency remains open to debate.

Other circuits have also struggled with the issue of adjacency. The broad definition of adjacency established under Riverside Bayview has been further extended to include artificially created wetlands.

In addition, some courts have held that wetlands separated from other waters by man-made dikes or barriers are considered "adjacent."

However, United States v. Sargent County Water, 876 F. Supp. 1081 (D.N.D. 1992), held that sloughs were not adjacent within the meaning of the Clean Water Act because, even though there was a surface water connection between the sloughs and the Wild Rice River, the seven-mile distance between them did not justify a finding of adjacency.

Recently, the Supreme Court rejected a request to revisit the question of adjacency in United States v. Banks, 115 F.3d 916 (11th Cir. 1997), cert. denied 118 S. Ct. 852. Banks may have presented an interesting test case for what type of hydrological connection is required to establish adjacency. In a dispute that began in 1980, Banks was found to have filled several lots without a permit while ignoring the Corps' cease and desist orders. The circuit court accepted the finding of the trial court that adjacency may be established via a hydrological connection from groundwater and surface water during storms. Banks sought review by the Supreme Court, arguing that five circuits have issued conflicting decisions regarding the hydrological connection necessary to establish adjacency. Thus, the question remains open to dispute.

Regulated Activities

Judge Niemeyer also addressed the types of activities covered by the Section 404 prohibition on "discharge" of a "pollutant." He concluded that the defendants act of draining the wetlands by ditching and redepositing the soil next to the ditch (known as "sidecasting") could not be regulated because it did not constitute an "addition" of a pollutant. He reasoned that "[w]hile sidecasting moves excavated dirt from one particular locus in the wetland to another, it does not involve the addition of any material to a wetland." Judge Payne disagreed, reasoning that a pollutant does not have to originate from the outside world in order to be an "addition." He supported this argument by tracing the Corps' historic regulation of sidecasting and discussing at length the polluting effect of redepositing dredged material into the water column. Again, Judge Luttig voiced no opinion on this issue.

Interestingly, neither of the judges discussed the recent "Tulloch" decision, National Mining Assoc. v. U.S. Army Corps of Engineers, 951 F. Supp 276 (D.D.C. 1997), which struck down the Corps' and EPA's regulation of excavation, dredging and land-clearing activities that result in de minimis incidental fallback.

Although noting that the Corps has a history of regulating the redeposit of material as a pollutant, the district court drew a distinction between "redeposit" of dredged material as regulated under the CWA, and incidental fallback, which it held is not regulated.

In addition, the National Mining Association court concluded that the term "discharge" has a very definite meaning and excludes small volume incidental discharge that accompanies excavation and land-clearing activities. (This decision is on appeal to the D.C. Circuit, No. 97-5099. Oral arguments were held on January 9, 1998.) The lower court also found that excavations are not specified disposal sites for which discharge permits are to be issued. Ultimately, the district court concluded that through an absence of amendment, Congress ratified 18 years of agency and judicial interpretation that excludes incidental fallback from the jurisdiction of the Corps. Judge Payne, although not specifically citing National Mining Association, appeared to adopt that decision's rationale. Finding "sidecasting" akin to redeposit, Payne relied in part upon Avoyelles and concluded that this practice results in an "addition" of sub-surface material that ought to be regulated as a pollutant. In an interesting twist, counsel for the Intervenor, National Wildlife Federation, relied in his oral argument before the D.C. Circuit in National Mining Association on Judge Payne's opinion in Wilson.

Criminal Liability

Finally, the court was unanimous in ruling that in order for the government to convict a defendant of "knowingly" discharging a pollutant, it must prove that the defendant had knowledge of the facts of each of the elements constituting the violation, even if unaware of their legal significance. The court held that the government must prove:

(1) that the defendant knew that he was discharging a substance, eliminating a prosecution for accidental discharges; (2) that the defendant correctly identified the substance he was discharging, not mistaking it for a different, unprohibited substance; (3) that the defendant knew the method or instrumentality used to discharge the pollutants; (4) that the defendant knew the physical characteristics of the property into which the pollutant was discharged that identify it as a wetland, such as the presence of water and water loving vegetation; (5) that the defendant was aware of the facts establishing the required link between the wetland and the waters of the United States; . . . and (6) that the defendant knew that he did not have a permit.

133 F.3d at 264.

The court rejected the defendants' argument that the CWA requires proof that they were aware of the illegality of their conduct and that the required mens rea must accompany each element of the offense. Building upon the notion that "ignorance of the law is no excuse," the court held that "while some level of deliberateness is usually required to impose criminal punishment, it is also usually true that the defendant need not appreciate the illegality of his conduct." The court concluded that it is enough to know the facts that make the act illegal, even if the defendant does not know that the conduct is illegal.

Other circuits have struggled with the mens rea requirement. The Ninth Circuit concluded that when a person is charged with discharging a pollutant into navigable waters, the prosecution must prove only that the defendant acted knowingly in regards to the conduct, but need not know of the legal requirements. See United States v. Weitzenhoff, 35 F.3d 1275 (9th Cir. 1994). This reading of the CWA was concurred in by the Second Circuit. See United States v. Hopkins, 53 F.3d. 533 (2nd Cir. 1995). In United States v. Ahmad, 101 F.3d 386 (5th Cir. 1996), the defendant was charged with discharging gasoline without a permit despite his claims that he thought he was discharging water, not gasoline. Addressing the issue of whether "knowingly" applies to the element of the discharge being a pollutant, the Fifth Circuit distinguished Weitzenhoff and Hopkins as not addressing the question of mistake of fact. The Fifth Circuit reversed Ahmad's conviction on the basis that jury instructions misled the jury as to the need to prove that Ahmad knew that the substance that he was pumping from his underground tanks was gasoline.

Conclusion

The final impact of Wilson is far from clear. The case raises fundamental constitutional issues that go to the heart of federal jurisdiction under the Clean Water Act. The government's request for a rehearing before the same three judges was denied on January 29, 1998, and the only recourse now is to seek Supreme Court review. Therefore, at present it is highly questionable that the Corps may assert jurisdiction over isolated wetlands and waters based on the "could affect commerce" test of the invalidated regulation for wetlands and waters in states covered by the Fourth Circuit. Thus, in these states, isolated ponds, wetlands, and intermittent and ephemeral streams that have no discernible surface connection to navigable and interstate waters are arguably beyond the reach of the Corps' jurisdiction under the Commerce Clause.

The Corps is currently drafting guidance for field offices on how to interpret Wilson and has directed its offices to carefully document a commerce clause connection for isolated waters and wetlands. Clearly, the Corps does not want to relinquish jurisdiction over potentially hundreds of thousands of acres of land. The government will also likely try to limit the Fourth Circuit's interpretation in future "as applied" jurisdictional challenges.

The impact of the ruling on the waters and wetlands programs of the various states within the Fourth Circuit is also unclear. In many states, such as Maryland, the definition of "waters" is broader than the Clean Water Act and includes groundwater. However, a number of states, including Maryland, operate under a Corps Statewide Programmatic General Permit whereby many wetlands permitting decisions are delegated to the state level. Wilson will likely affect the relationship between the states and the Corps under these Programmatic General Permits because these programs are designed to promote consistency and avoid unnecessary duplication between federal and state law.

In sum, while the final impact of the Wilson decision is still uncertain, the decision could ultimately lead to a significant retraction of the ever-expanding reach of the Corps in regulating wetlands under the CWA.

* Lawrence R Liebesman is Partner and Co-Chair of the Environmental Practice Group of the Silver Spring, Maryland Firm of Linowes and Blocher LLP, where his practice concentrates on wetlands law and regulation. He was formerly a senior trial attorney at the Department of Justice. Rafe Petersen is an Associate in Linowes and Blocher's Environmental Practice Group.

1 See 40 C.F.R. § 230.3(s)(3) (1986).

The court relied upon the preamble to the 1986 regulations, 51 Fed. Reg. 41,217 (1986), which state that "waters of the United States" includes waters "[w]hich are or would be used as habitat by birds protected by the Migratory Bird treaties."

"Adjacent" is defined as "bordering, contiguous, or neighboring." 33 C.F.R. 32Y..3(c) (1995). See United States v. Southern Inv. Co., 876 F.2d 606 (8th Cir. 1989); Swanson v. United States, 789 F.2d 1368 (9th Cir. 1986); United States v. Ciampatti, 615 F. Supp. 116 (D.N.J. 1984), aff'd, 772 F.2d 893 (3d Cir. 1985); United States v. Akers, 651 F. Supp. 320 (D. Cal. 1987); Track 12, Inc. v. District Engineer, 618 F. Supp. 448 (D. Minn. 1985). United States v. Lee Wood Contracting, 529 F. Supp. 119 (E.D. Mich. l981) (adjacency found despite presence of several large parcels of land and farms between wetlands and the river); United States v. Tilton, 705 F.2d 429 (l1th Cir. 1983) (swamp considered adjacent although separated from river by a 30-foot-wide berm); United States v. Hobbs, 21 ELR 20830 (E.D. Va. 1990) (wetlands that are next to manmade canals dug on dry land are found adjacent). See 33 C.F.R. § 323.2(d)(1)(iii) (Corps regulations) and 40 C.F.R. §232.2(1)(iii) (EPA regulations).

The court noted that in Avoyelles Sportsmen's League, Inc. v. Marsh, 715 F.2d 897, 923 (5th Cir. 1983), the Fifth Circuit "found that reading 'addition' to include 'redeposit' was consistent with the purposes and legislative history of the Act." 951 F. Supp. at 272. It concluded, however, that "[because] Congress did not consider incidental fallback as the addition of a pollutant, deference would not be appropriate." Id.

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