In re Needham

• Decision Date: 16 December 2003
• Docket Number: No. 02-30217.,02-30217.
• Citation: 354 F.3d 340
• Parties: In the Matter of: James Hamilton NEEDHAM; Janell Renae Cole Needham, Debtors. United States of America, et al., Appellants, v. James Hamilton Needham, et al., Appellees. In the Matter of: James Hamilton Needham; Janell Renae Cole Needham, Debtors. D&C Operating Inc. Appellants, v. James Hamilton Needham; Janell Renae Cole Needham, Appellees.
• Court: U.S. Court of Appeals — Fifth Circuit

354 F.3d 340

In the Matter of: James Hamilton NEEDHAM; Janell Renae Cole Needham, Debtors.

United States of America, et al., Appellants, v. James Hamilton Needham, et al., Appellees.

In the Matter of: James Hamilton Needham; Janell Renae Cole Needham, Debtors.

D&C Operating Inc. Appellants, v. James Hamilton Needham; Janell Renae Cole Needham, Appellees.

No. 02-30217.

United States Court of Appeals, Fifth Circuit.

December 16, 2003.

COPYRIGHT MATERIAL OMITTED

Guy Earl Wall (argued), Wall & Bullington, New Orleans, LA, for D&C Operating Inc.

Charles Michael Pisano (argued), James Monroe White, III, Barkley & Thompson, New Orleans, LA, for James and Janell Needham.

Stanley A. Millan (argued), Tara G. Richard, Jones, Walker, Waechter, Poitevent, Carrere & Denegre, New Orleans, LA, for St. Tammany Parish Drainage and Tammany Holding Corp., Amici Curiae.

Virginia Swisshelm Albrecht (argued), Hunton & Williams, Stephen Michael Nickelsburg, Sidley, Austin, Brown & Wood, Washington, DC, for Nat. Ass'n of Home Builders, Nat. Ass'n of Realtors, Nat. Ass'n of Indus. and Office Properties, Nat. Multi Housing Council, Nat. Apartment Ass'n, Real Estate Roundtable, Building Industry Legal Defense Found., Foundation for Environmental and Economic Progress and Intern. Council of Shopping Centers, Amici Curiae.

Appeals from the United States District Court for the Western District of Louisiana.

Before REAVLEY, JOLLY and JONES, Circuit Judges.

EDITH H. JONES, Circuit Judge:

This case arises from the efforts of the United States Coast Guard to compel James and Janell Needham ("Needhams") to reimburse the United States, under the Oil Pollution Act ("OPA"), 33 U.S.C. §§ 2701-2720 (2000), for cleanup costs associated with an oil spill. The bankruptcy court, in the first instance, and the district court on appeal, held that the Needhams were not liable to the United States for the cleanup costs because the waters in question were not navigable, and were therefore beyond the reach of the OPA. However, for the reasons stated below, we disagree and therefore reverse and remand.

I. BACKGROUND

On or about January 25, 1999, the Louisiana Department of Environment Quality ("LDEQ") received a complaint of an oil spill in LaFourche Parish, Louisiana. The spill occurred at a facility known as the Thibodeaux Well when Tommy Jones, a pumper/gauger employed by Needham Resources, Inc. ("NRI"), pumped oil from a containment basin into an adjacent drainage ditch. The well is co-owned by NRI and D&C Operating, Inc. ("D&C").¹ James Needham ("Needham") is the sole owner of NRI.

The EPA investigated the spill and contacted James Needham to discuss the matter. Initially, NRI hired a private contractor to perform the necessary cleanup, but lacked the resources to complete the operation. The EPA and the Coast Guard then assumed responsibility for the cleanup effort funded by the Oil Spill Liability Act. Their efforts cost roughly $207,000.²

On February 8, 1998, the Needhams filed a Chapter 11 bankruptcy petition in the Western District of Louisiana.³ The next day, the United States sued the Needhams, NRI and D&C in federal court to recover its cleanup costs. The civil suit was and remains stayed pending resolution of this bankruptcy court dispute over the government's proof of claim against the Needhams. D&C also filed a proof of claim, contingent upon a finding of liability under the OPA. The Needhams objected to the EPA's proof of claim, asserting, inter alia, that the spill did not implicate any navigable waters subject to federal jurisdiction, and was therefore not regulated by the OPA.

At the bankruptcy court hearing on the disputed claim, the United States offered a videotape showing the extent of the oil spill. Patrick Breaux, an environmental coordinator with the LDEQ, narrated the video and offered further testimony concerning the nature and extent of the cleanup. Breaux was the hearing's only live witness. Moreover, within a litany of documentary evidence, the parties submitted a five-page written stipulation addressing a variety of evidentiary and substantive issues. Importantly, the parties there agreed that the oil, which was originally discharged into the drainage ditch at Thibodeaux Well, spilled into Bayou Cutoff, and then into Bayou Folse. Bayou Folse flows directly into the Company Canal, an industrial waterway that eventually flows into the Gulf of Mexico.

After reviewing the evidence, the bankruptcy court found that "neither the drainage ditch nor Bayou Cutoff are navigable waters nor are they sufficiently adjacent to the navigable waters to support an extension of the OPA." In re Needham, 279 B.R. 515, 519 (Bankr.W.D.La.2001). Thus concluding that the spill was not subject to federal regulation, the bankruptcy court sustained the Needhams' objection to the United States' proof of claim. The United States appealed the decision to the district court, which briefly affirmed, finding no basis to disturb the bankruptcy court's conclusions. See United States v. Needham, 2002 WL 1162790 (W.D.La. January 22, 2002).

II. STANDARD OF REVIEW

We review the factual findings of the trial court for clear error. In re Gerhardt, 348 F.3d 89, 91 (5th Cir.2003). Therefore, whether a waterway is navigable-in-fact is subject to the clearly erroneous standard. See Dardar v. Lafourche Realty Co., Inc., 55 F.3d 1082, 1085 (5th Cir.1995)(citing The Daniel Ball, 77 U.S. (10 Wall.) 557, 563, 19 L.Ed. 999 (1870)).⁴ "Under a clear error standard, this court will reverse only if, on the entire evidence, we are left with the definite and firm conviction that a mistake has been made." Otto Candies, L.L.C. v. Nippon Kaiji Kyokai Corp., 346 F.3d 530, 534 (5th Cir.2003) (citations and quotations omitted). Conversely, the district court's statutory interpretation is subject to de novo review. United States v. Phipps, 319 F.3d 177, 183 (5th Cir.2003).

III. DISCUSSION

The United States challenges the bankruptcy court's conclusion that the oil discharged from the Needham facility did not contaminate waters regulated by the federal government under the OPA. It contends that the oil spilled into navigable-in-fact waters, or at a minimum, into waters adjacent to an open body of navigable water. Because we agree with the latter argument, we reverse the bankruptcy court's decision.

A.

The OPA imposes strict liability upon parties that discharge oil into "navigable waters," a term defined in the statute to mean "the waters of the United States, including the territorial sea." 33 U.S.C. § 2701(21)(2000).⁵ This is co-extensive with the definition found in the Clean Water Act ("CWA"). See Rice v. Harken Exploration Co., 250 F.3d 264, 267 (5th Cir.2001) (citing 33 U.S.C. § 1362(7)(2000)).⁶ Rice establishes that the OPA, like the CWA, does not extend federal regulation to the outermost limits of the Commerce Clause. Id. at 269-70.

Although under both the OPA and the CWA "waters and wetlands need not always actually be navigable-in-fact to be protected," id. at 268, the Supreme Court recently found the inclusion within "waters of the United States" of certain isolated, non-navigable waters exceeded the Army Corps of Engineers' regulatory power under the CWA. Solid Waste Agency of Northern Cook County v. United States Army Corps of Engineers ("SWANCC"), 531 U.S. 159, 172-74, 121 S.Ct. 675, 682-84, 148 L.Ed.2d 576 (2001). The Court emphasized that these isolated bodies of water were neither navigable-in-fact nor adjacent to open water. Id. at 168, 121 S.Ct. 675.

SWANCC narrowed, but did not overturn United States v. Riverside Bayview Homes, 474 U.S. 121, 106 S.Ct. 455, 88 L.Ed.2d 419 (1985), which upheld CWA regulations restricting discharges into a non-navigable wetland adjacent to open waters. Id. at 133, 106 S.Ct. 455.⁷ To reach this result, Riverside Bayview Homes interpreted "waters of the United States" broadly to encompass "all wetlands adjacent to other bodies of water over which the Corps has jurisdiction...." Thus, Riverside Bayview Homes, unlike SWANCC, involved a wetland "adjacent to an open body of water that was actually navigable." Rice, 250 F.3d at 268; see also SWANCC, 531 U.S. at 167, 121 S.Ct. 675 (stating that the wetland in Riverside Bayview Homes "actually abutted on a navigable waterway").

Nevertheless, the United States urges this court to approve its regulatory definition of "navigable waters." See 40 C.F.R. § 300.5 (2003). This definition includes as "navigable waters" all "tributaries" of navigable-in-fact waters. See id. at § 300.5(d). According to the government, the definition covers all waters, excluding groundwater, that have any hydrological connection with "navigable water." At least two courts appear to have agreed with this expansive interpretation. See United States v. Deaton, 332 F.3d 698, 702 (4th Cir.2003)(asserting authority, under the CWA, over wetlands that are "adjacent to, and drain into, a roadside ditch whose waters eventually flow into the navigable Wicomico River and Chesapeake Bay"); United States v. Rapanos, 339 F.3d 447, 449 (6th Cir.2003) (asserting authority, under the CWA, over wetlands that flow into a man-made drain, which in turn flows into a creek, which in turn flows into a navigable river).

In our view, this definition is unsustainable under SWANCC. The CWA and the OPA are not so broad as to permit the federal government to impose regulations over "tributaries" that are neither themselves navigable nor truly adjacent to navigable waters. See Rice, 250 F.3d at 269.⁸ Consequently, in this circuit the United States may not simply impose regulations over puddles, sewers, roadside ditches and the like; under SWANCC "a body of water is subject to regulation ... if the body of water is actually navigable or adjacent to an open body of navigable water." Rice, 250 F.3d at 269.⁹

B.

Using this interpretation of the OPA, we next consider the bankruptcy court's findings of fact. Two finding of fact are critical....