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Ninth Circuit Hands Reclamation and Water Districts Another Win in California ESA and Water Rights Case

November 14, 2012

The Ninth Circuit Court of Appeals has turned back challenges by environmental groups seeking to use the ESA to curtail water flows to irrigators in central California. In Natural Resources Defense Council v. Salazar, 686 F.3d 1092 (9th Cir. 2012), the Ninth Circuit upheld two controversial decisions made by former federal district court Judge Oliver Wanger in 2008 and 2009: First, that Plaintiffs, five environmental advocacy groups, lacked standing to challenge certain irrigation contracts due to a shortage provision that allows the Bureau of Reclamation (the “Bureau”) to take action to comply with the ESA. Second, that the Bureau’s renewal of water service contracts was not discretionary under the ESA, meaning that their renewal was not subject to the ESA’s consultation requirements.

The Ninth Circuit’s opinion on these issues provides important guideposts for irrigation districts assessing ESA compliance costs and parameters, for Reclamation and the federal wildlife Services in determining the scope of consultation obligations, and for environmental groups developing their legal strategies.

Water shortage provisions vary by contract, but many early and mid-20th century water project contracts entered into by the Bureau and irrigation districts in the Pacific Northwest contain versions similar to that in the contracts at issue in the NRDC v. Salazar appeal. The Ninth Circuit’s holding means that, in those cases, environmental plaintiffs seeking to challenge such contracts and associated water project operations may lack standing to do so under the ESA and APA. While each unique contract must be analyzed individually, the Ninth Circuit’s holding on discretion will weaken potential claims that water contract renewals such as those at issue in the NRDC v. Salazar case trigger ESA consultations. Environmental plaintiffs still have several available vehicles for legal challenges in such circumstances, including allegations of “take” under ESA section 9, or failure to fully assess environmental impacts under NEPA. The Ninth Circuit’s application of National Association of Home Builders v. Defenders of Wildlife (“Home Builders”), 551 U.S. 644 (2007) in its NRDC v. Salazar opinion, however, could significantly weaken potential claims under ESA section 7—claims that often form the primary basis for ESA challenges to water project contract revisions, renewals, and associated operations.

California Water Projects and the Delta Smelt

NRDC v. Salazar concerns claims by environmental groups challenging long-term contracts for water delivery from the Central Valley Project (“CVP”) and State Water Project (“SWP”) in California. Broadly, the groups allege that the operations of the CVP and SWP (together, the “Projects”) adversely affect the survival and recovery of the threatened Delta Smelt. The groups challenged two categories of water contracts governing those operations: 1) the “DMC Contracts,” between the Bureau and a coalition of south-of-Delta water contractors within the Delta-Medota Canal Unit of the DMC; and 2) the “Settlement Contracts” or “SMS Contracts,” between the Bureau and a coalition of Sacramento River Settlement Contractors.[1]

The Ninth Circuit’s Opinion in NRDC v. Salazar

The Ninth Circuit addressed whether the renewal of 41 water supply contracts by the Bureau violated ESA section 7(a)(2) by threatening the existence of the threatened Delta Smelt. Plaintiffs challenged Judge Wanger’s decisions that: 1) Plaintiffs lacked standing to challenge the DMC Contracts; and 2) Plaintiff’s claims as to the Settlement Contracts fail because those contracts do not require compliance with ESA section 7(a)(2).[2]

While the Ninth Circuit found that the appeal itself was not moot, it affirmed the district court’s substantive opinions against Plaintiffs’ challenges.

On standing, the Court held that Plaintiffs’ assertion that the DMC contracts were based on a legally flawed Biological Opinion “is an assertion of a procedural violation.”[3] However, even under that more lenient standing evaluation for procedural claims,[4] the Court found that Plaintiffs failed to establish the required “causal connection between the threatened injury and the Bureau’s action because the DMC contracts include a shortage provision.”[5] Agreeing with Judge Wanger, the Ninth Circuit panel found that:

[t]he shortage provision expressly allows the Bureau to take any action to meet its legal obligations, which includes not delivering water to DMC Contractors if it is necessary in order to comply with § 7(a)(2) of the ESA. The DMC contract terms, therefore, expressly require that water delivery be subject to the requirements of Federal law and that the Bureau may discontinue or reduce the quantity of water delivered to the DMC Contractors. The threatened injury, i.e., jeopardy to the delta smelt, would not be traceable to the contract renewals because such contracts expressly allow for § 7(a)(2) compliance. With no threatened injury there is nothing to redress.[6]

Accordingly, the Court affirmed the district court’s determination that plaintiffs lacked standing to challenge the DMC contracts, under both procedural and substantive standing analyses.[7]

On discretion, the Court agreed with Judge Wanger again, finding that “the Bureau’s discretion is limited with regard to the Settlement Contracts so that § 7(a)(2) of the ESA is not triggered. The Bureau’s hands are tied historically by those asserting senior water rights in the CVP. The Bureau was required to acknowledge such rights in order to operate the CVP, which it did by entering the Settlement Contracts.”[8]

Circuit Judge Paez dissented, arguing that just because the contracts “allow the Bureau to comply with the ESA certainly does not ensure that the Bureau will do so. The plaintiffs contend that the Bureau violated the ESA; the fact that the DMC contracts contain a shortage provision tells us nothing about whether the plaintiffs are right.”[9] Judge Paez would have held: 1) that Plaintiffs had standing to challenge both categories of contract; and 2) because he “concluded that the Bureau has discretion simply not to renew the SRS contracts,” that Home Builders does not operate to preclude application of the ESA and “the Bureau must comply with ESA [section] 7(a)(2).”[10]

For more information contact Jessica Ferrell or any other member of Marten Law’s Natural Resources or Water Resources practice groups.

[1] A primary difference between categories relevant to the Ninth Circuit’s opinion in NRDC v. Salazar was the scope of the water (i.e., base or project water) to which their respective shortage provisions applied. The shortage provision in the DMC Contracts, for example, authorize the Bureau to withhold and reduce water deliveries to the DMC contractors for ESA compliance purposes, without incurring liability to the DMC Contractors for curtailing deliveries. The SMS contract provision is limited to project water. NRDC v. Kempthorne, No. 05-1207, Mem. Decision Re Cross Mots. for Summ. J. Re CVP Contract Rescission, Dkt. 761 at 38 (E.D. Cal. Nov. 19, 2008).

[2] NRDC v. Salazar, 686 F.3d 1092, 1098-99 (2012). On appeal, Plaintiffs challenged NRDC v. Kempthorne opinions available at 2009 WL 1575208 and 2009 WL 2849626, which in turn incorporated Judge Wanger’s opinions issued on November 19, 2008 and April 27, 2009 (full citations and discussion, infra).

[3] NRDC v. Salazar, 686 F.3d at 1098.

[4] “To invoke the jurisdiction of the federal courts, a plaintiff must have Article III standing. To establish Article III standing, a plaintiff must show that: (1) he or she has suffered an injury in fact that is concrete and particularized, and actual or imminent; (2) the injury is fairly traceable to the challenged conduct; and (3) the injury is likely to be redressed by a favorable court decision. If a plaintiff asserts a procedural injury, he must show that the procedures are designed to protect a concrete threatened interest and, once shown, his burden for showing causation and redressability is lessened. In that case, plaintiffs “must show only that they have a procedural right that, if exercised, could protect their concrete interests.” Id. (internal citations and quotations omitted).

[5] Id.

[6] Id.

Judge Wanger previously decided that the force majeure rights afforded by the shortage and release provisions, which the Bureau had historically exercised, “break any chain of causal connection between the Bureau’s ongoing performance under the DMC Contracts and harm to the Delta smelt, because the DMC Contracts provide no enforceable right to water in the DMC Contractors, if water delivery will violate the ESA.” NRDC v. Kempthorne, No. 05-1207, Mem. Decision Re Cross Mots. for Summ. J. Re CVP Contract Rescission, Dkt. 761 at 38 (E.D. Cal. Nov. 19, 2008).

Finding that Plaintiffs could not meet the causation prong, Judge Wanger held that Plaintiffs lacked standing to bring certain ESA and APA claims against the DMC Contractors—for “[a]ny harm to the smelt will not be the result of execution or performance of the DMC Contracts.” Id. at 38-40. By contrast, the shortage and release provisions in the SMS contracts applied only to “project water,” as opposed to the broader “base supply” of water. Id. at 45-47. The SMS contractors argued that the base supply is not subject to the ESA under the Supreme Court’s Home Builders decision. However, because district courts “must assume that Plaintiffs will prevail on the merits” when deciding whether they have standing, the court assumed that the ESA applied to any volume of base supply water “that does not represent senior water rights protected by law.” Id. at 47.

Accordingly, the district court held that the shortage provisions in the SRS Contracts were “not sufficiently comprehensive to break the causal chain” for purposes of standing. The court ultimately held that Plaintiffs lacked standing to bring claims against the DMC Contracts, but has it to challenge the SRS contracts. Id. at 52, 93-94.

[7] NRDC v. Salazar, 686 F.3d at 1098.

[8] Id. at 1099-1100.

Under section 7(a)(2) of the ESA, “each Federal agency, … in consultation with and with the assistance of the Secretary [of Commerce or the Interior],” must “insure that any action authorized, funded, or carried out by such agency not likely to jeopardize the continued existence of any endangered species or threatened species or result in the destruction or adverse modification of [critical] habitat of such species.” 16 U.S.C. § 1536(a)(2). By federal Service regulation, “[s]ection 7 and the requirements of this part apply to all actions in which there is discretionary Federal involvement or control.” 50 C.F.R. § 402.03. Thus, ESA consultation is not required for mandatory federal actions.

The U.S. Supreme Court upheld the Service’s interpretation of this provision of the ESA in its seminal 2007 opinion, National Association of Home Builders v. Defenders of Wildlife, 551 U.S. 644 (2007). In Home Builders, the Court held that the transfer of CWA authority, once statutory criteria are met, is non-discretionary, and that federal agencies need not consider ESA-listed species when taking non-discretionary actions under statutes that do not independently require such consideration. See J. Ferrell, Supreme Court Decides Endangered Species Not A Factor In Clean Water Act Transfer Decisions (June 2007).

 The ESA’s consultation requirement applies “only when an action results from the exercise of agency discretion.” NRDC v. Kempthorne, 621 F.Supp.2d 954, 972 (2009) (quoting Home Builders at 2533-35). Thus, “where a prior agreement or enforceable permit or license fails to retain for the federal agency the right to take action on behalf of a now-listed species, consultation requirements may not apply.” Id. at 973-74.

In the CVP cases, Judge Wanger explained that, “[t]o trigger Home Builders’ application, an agency’s discretion must be substantially constrained by a federal statutory command, international treaty, or prior contract, permit, or management decision. The cases demand a careful examination of the authority claimed to constrain the agency’s discretion.” Id. at 976.

On account of specific language in the SRS contracts and “the absence of any language reserving for the Bureau the right to alter the quantities of water that may be diverted by the SRS Contractors pursuant to their contracts,” Judge Wanger determined that “the Bureau lacks discretion to reduce diversions under the existing contracts for the benefit of listed species. Under Home Builders, section 7(a)(2) does not apply to the Bureau’s implementation of the SRS contracts. These are historically protected, vested Senior Water rights that take priority over the United States’ SRS water rights and the water allocation operations of the CVP.” Id. at 979. Judge Wanger noted that section 7(a)(2) could apply if the Bureau retained significant discretion in negotiating contract renewals. However, in evaluating the specific contractual language, he determined that the SRS Contracts “unambiguously” require contract renewals “to be for the same volume of water, allocation between Base Supply and Project Water, and place of use on specifically designated land as the original contracts. This substantially limits the Bureau’s discretion to modify the renewal contracts in ways that would benefit the smelt.” Id. at 988.

Judge Wanger explained that, “[m]ore than forty-five years ago, the United States and the SRS Contractors accepted the directions of the Water Board and the United States Congress to bring certainty to, and to enable the long-term operation of, the CVP through their compromised contractual recognition of senior [SRS] water rights, rather than undergo a complex, years-long stream adjudication. After a more than one-year study of the history and extent of all parties’ SRS water rights, the parties settled on long-term water contracts to continue for a 40 year term and renewals thereafter, for fixed, contractually defined quantities, allocations, and places of use.” Id. at 1000.

The terms of those Contracts provided “for the exact definition of water rights achieved in the original SRS Contracts to be preserved upon renewal. This substantially constrains the Bureau’s discretion to reduce diversions of [SRS] water for the benefit of the Delta smelt or any other reason, by fixing SRS Contractor quantities, allocations, and places of use upon renewal.” Id. The court held that:

[i]f the Bureau decides to terminate or abandon these settled water rights, its discretion will be restored at that time. Until then, under Home Builders, ESA § 7(a)(2) does not apply to the SRS Contract renewal process. The SRS Contracts contain the fail-safe of a condition subsequent, permitting non-renewal … if a general stream adjudication establishes that the full nature and extent of the SRS Contractors’ vested senior water rights differs from the rights defined in the Contracts. This is not unfair, unjust, or against the public interest, because without the SRS Contractors’ contribution of their senior water rights to the CVP, the CVP Units served by the Sacramento River System could not exist or effectively function.

Id. at 1000-01.

[9] NRDC v. Salazar, 686 F.3d at 1103-04 (Paez, J., dissenting) (emphasis in original).

[10] Id.

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