Hoffman Homes, Inc. v. Administrator, U.S. E.P.A.

• Decision Date: 19 July 1993
• Docket Number: No. 90-3810,90-3810
• Citation: 999 F.2d 256
• Parties: , 62 USLW 2056, 23 Envtl. L. Rep. 21,139 HOFFMAN HOMES, INCORPORATED, formerly known as Hoffman Group, Petitioner, v. ADMINISTRATOR, UNITED STATES ENVIRONMENTAL PROTECTION AGENCY, Respondent.
• Court: U.S. Court of Appeals — Seventh Circuit

Page 256

999 F.2d 256

36 ERC 2098, 62 USLW 2056, 23 Envtl.

L. Rep. 21,139

HOFFMAN HOMES, INCORPORATED, formerly known as Hoffman

Group, Petitioner, v. ADMINISTRATOR, UNITED STATES ENVIRONMENTAL PROTECTION

AGENCY, Respondent.

No. 90-3810.

United States Court of Appeals, Seventh Circuit.

Argued Sept. 5, 1991.

Decided July 19, 1993.

Virginia S. Albrecht (argued), Thomas C. Jackson, Albert J. Beveridge, Saone B. Crocker, Beveridge & Diamond, Washington, DC, for Hoffman Homes, Inc.

William K. Reilly, E.P.A., Daniel W. Pinkston (argued), Dept. of Justice, Land & Natural Resources Div., Washington, DC, Thomas J. Martin, Jr., E.P.A., Region 5, Office of Regional Counsel, Chicago, IL, Catherine Winer, E.P.A., Office of Gen. Counsel/Water Div., Washington, DC, for E.P.A.

Ronald A. Zumbrun, Robin L. Rivett, James S. Burling, Charles A. Klinge, Pacific Legal Foundation, Sacramento, CA, for Pacific Legal Foundation, amicus curiae.

William A. Butler, Douglas W. Smith, Jack Chorowsky, Powell, Goldstein, Frazer & Murphy, Washington, DC, for Eight Wetland Scientists, amicus curiae.

Before MANION, Circuit Judge, WOOD, Jr., Senior Circuit Judge, ^* and ROSZKOWSKI, Senior District Judge. ^**

HARLINGTON WOOD, Jr., Senior Circuit Judge.

A tremendous amount of effort has gone into trying to determine whether a small wetland near Chicago may be regulated under the Clean Water Act. ¹ After having issued, then vacated, one opinion on this subject, we hope now to resolve this difficult question.

I. BACKGROUND

On March 26, 1986, an employee of the Army Corps of Engineers was driving through the Village of Hoffman Estates, Illinois. The employee happened to see that work had begun in a former soybean field on a new subdivision called "Victoria Crossings." The subdivision would occupy a 43-acre square parcel which is bordered on the west by the Schaumburg Branch of Poplar Creek, on the east by a road, on the north by another subdivision, and on the south by a wetland and a road.

The Corps investigated the site; it determined that the subdivision's owner, Hoffman Homes, Inc. ("Hoffman"), had violated the Clean Water Act ("CWA" or "Act"), 33 U.S.C. § 1251 et seq., when it filled and graded parts of the site in preparation for construction. Specifically, the Corps felt Hoffman illegally filled two wetlands, "Area A" and "Area B."

Area A was a bowl-shaped depression at the northeast border of the tract that covered approximately one-acre. The basin was lined with relatively impermeable clay; before being filled by Hoffman, Area A collected rain water and snow melt and frequently ponded or saturated during wet weather. Area A contained at least four different types of wetland vegetation, including cattails. Area A was not directly connected to any body of water, either on the surface or by groundwater, and lay approximately 750 feet from Poplar Creek. Area B ran along the entire western and most of the southern borders of the tract. This wetland covered 13.3 acres, of which Hoffman had filled 5.9 acres. Area B is part of a 50-acre wetland area adjacent to the Poplar Creek. The creek flows into the Fox River which is a tributary of the Illinois River which empties into the Mississippi River.

Having been designated as wetlands pursuant to 33 C.F.R. § 328.3(b), the sites could not legally be filled unless Hoffman obtained a permit pursuant to 33 U.S.C. § 1342 or § 1344. On May 30, 1986, the Corps issued a cease and desist order to Hoffman. This order instructed Hoffman to stop filling wetlands at the site and to apply for an after-the-fact permit to fill the areas. Hoffman did so. The Environmental Protection Agency ("EPA" or "Agency"), which shares responsibility with the Corps for administering and enforcing the CWA, then objected to Hoffman's plans for mitigating the damage to the wetlands. Consequently, on November 20, 1987, the Corps denied Hoffman's permit application and referred the matter to the EPA.

The EPA on December 22, 1987, issued a compliance order pursuant to 33 U.S.C. § 1319(a). The order stated that Hoffman had filled wetlands without a permit, thereby violating 33 U.S.C. § 1311. The compliance order directed Hoffman to cease its filling activities and to submit and carry out a plan to restore the wetlands to their original condition. On January 12, 1988, the EPA also issued an administrative complaint against Hoffman, pursuant to 33 U.S.C. § 1319(g), seeking a $125,000 penalty for Hoffman's filling activities. Hoffman answered the complaint, admitting it had filled the two areas but denying they were waters subject to the CWA. On October 24, 1988, hearings commenced before an EPA Administrative Law Judge ("ALJ"). The hearings lasted a total of twenty-one days but did not run consecutively. The final hearing was held January 19, 1989.

On August 4, 1988, while the hearings before the ALJ were still proceeding, Hoffman brought an action in district court seeking a declaration of the compliance order's invalidity and an injunction against its enforcement. At that time the EPA had not yet decided whether to enforce its compliance order by bringing an action in a federal court pursuant to 33 U.S.C. § 1319(b). Consequently, the district court dismissed Hoffman's action in January 1989. The district court held that the CWA precluded pre-enforcement review of the EPA's compliance order. See Hoffman Group, Inc. v. United States E.P.A., No. 88 C 6695, 1989 WL 165265 at * 20003, 1989 U.S. Dist. LEXIS 16,599, at * 2 (N.D.Ill. Jan. 23, 1989). Hoffman appealed the district court's decision and we affirmed. We explained that Hoffman was not entitled to judicial review unless the EPA either assessed administrative penalties against Hoffman or sought judicial enforcement of its compliance order. Until such time, Hoffman was not subject to penalties or an injunction for not obeying the EPA's compliance order. See Hoffman Group, Inc. v. E.P.A., 902 F.2d 567, 568 (7th Cir.1990).

Shortly after our decision Hoffman became entitled to judicial review. On November 19, 1990, the EPA's Chief Judicial Officer ("CJO") assessed a $50,000 fine against Hoffman for having discharged "dredged or fill material" into Area A without a permit in violation of 33 U.S.C. § 1311 and § 1314 and affirmed another $50,000 penalty against Hoffman for filling Area B.

In fining Hoffman for filling Area A, the CJO was reversing the ALJ. On September 14, 1989, in the ALJ's "Initial Decision," the ALJ had found that although Area A was a wetland it was not subject to the CWA's permit requirements. The ALJ characterized Area A as being "isolated." Initial Decision at 48. The EPA had not shown, the ALJ found, that Area A had any surface or groundwater connection with Poplar Creek. In the ALJ's opinion, the Agency also failed to show that Area A performed flood control or sediment trapping in connection with drainage into or the possible flooding of the creek. Id. at 45. Instead, the ALJ found that water drained into Area A from the immediately surrounding area, collected there, and then slowly evaporated or dissipated. Id. at 47. "There is also no basis for determining if Area A has any effect on the Schaumburg Branch [of Poplar Creek], because it simply cannot be determined what the drainage or flow of water would be if Area A were not there." Id.

The ALJ recognized that under EPA and Corps regulations, Area A would be subject to the CWA permit requirements if the wetland affected interstate commerce, see 40 C.F.R. § 230.3(s)(3), 33 C.F.R. § 328.3(a)(3), and further noted that the EPA and Corps consider a wetland to affect interstate commerce if, for instance, the wetland serves as habitat for migratory birds. Initial Decision at 48. The ALJ, however, found the EPA had not presented evidence of actual use by migratory birds of Area A nor of any special characteristics that would attract migratory birds to Area A.

Since there was nothing more "than the theoretical possibility" Area A would be used by migratory birds, the ALJ found the regulations did not apply. Id. at 49. The EPA appealed the ALJ's decision to the CJO. The EPA, however, did not challenge the ALJ's findings regarding Area A's hydrological isolation; the Agency only challenged the ALJ's conclusion that given those findings the regulations were inapplicable to Area A.

The CJO held that the EPA could not assert jurisdiction over "an isolated, intrastate water body" unless it could demonstrate "that the destruction of that water body will have an effect on interstate commerce." Final Decision at 9. To satisfy its burden of proof, the CJO required the EPA to "show some minimal, potential effect on interstate commerce." Id. This effect was shown, the CJO concluded, when the EPA demonstrated Area A provided "a suitable habitat for migratory birds before it was filled in." Id. at 2. The CJO noted that Area B supported migratory bird habitat and by its proximity Area A could as well. Id. at 30.

Hoffman appealed the CJO's decision regarding Area A, but not Area B, to this court. We exercised jurisdiction pursuant to 33 U.S.C. § 1319(g)(8)(B). The developer contended the CWA did not give the EPA regulatory authority over Area A. The EPA maintained it had jurisdiction due to the potential use of Area A by migratory birds. We held the EPA's regulations went beyond the limits of the Clean Water Act and the commerce clause, U.S. Const. art. 1, § 8, cl. 3. Accordingly, on April 22, 1992, we vacated the EPA's $50,000 penalty against Hoffman for filling Area A. See Hoffman Homes, Inc. v. Administrator, United States E.P.A., 961 F.2d 1310, 1321-23 (7th Cir.1992).

The EPA then filed a petition for rehearing and suggested the rehearing be conducted en banc. On September 4, 1992, we granted the petition for rehearing and vacated our opinion and order. We further ordered that the matter be referred to our senior staff attorney, Donald J. Wall, for the purpose of conducting settlement negotiations between the...