Ninth Circuit Court of Appeals holds U.S Bureau of Reclamation renewal of water service contracts not discretionary and therefore not subject to Section 7(a)(2) of the Endangered Species Act

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On July 17, 2012, the Ninth Circuit Court of Appeals released its decision in Natural Resources Defense Council v. Salazar, 2012 U.S. App. Lexis 14614 (Case No. 09-17661) affirming Judge Oliver Wanger’s decision in the Eastern District of California, finding that the United States Bureau of Reclamation did not violate section 7(a)(2) of the federal Endangered Species Act by renewing 41 water supply contracts. In this case, plaintiffs argued the Bureau unlawfully renewed the water service contracts without conducting adequate consultation under Section 7(a)(2) of the ESA, and that the contract renewals jeopardized the existence of the Delta smelt.

Background and Procedure

The Bureau operates the Central Valley Project, which is a network of dams, reservoirs, and pumping facilities for regulating and distributing water from the Sacramento and San Joaquin River watersheds. California’s State Water Project operates within the same watershed, and is an analogue to the CVP.

The Bureau and the SWP have coordinated management of the CVP since the 1930’s when the Bureau assumed control of the CVP because California could not finance the project. To operate the CVP, the Bureau was required to obtain water rights under state law, but a dispute arose regarding the priority of pre-project water rights. The California Water Rights Board held hearings on the matter and issued a decision allowing the Bureau to manage CVP water if it first addressed the issue of senior water rights holders. In response to that decision, the Bureau entered into 142 settlement contracts, each for 40-year terms with some parties asserting senior water rights from 1964. The contracts guaranteed so-called “Settlement Contractors” a certain amount of base water, which could only be reduced by 25% in very dry years. The Bureau also entered into long-term contracts with a coalition of water service contractors who obtained water from the Delta-Mendota Canal (DMC Contractors).

In 2003, the Bureau prepared a biological assessment under the ESA regarding effects on the Delta smelt from the renewal of the contracts, and requested consultation with the Fish and Wildlife Service. In 2004, the Service issued concurrence letters, which concluded the contract renewals were not likely to adversely affect any listed species or their critical habitat. Following the decision in Gifford Pinchot Task Force v. U.S. Fish and Wildlife Service, 378 F.3d 1059 (9th Cir. 2004) (invalidating the regulatory definition of “destruction or adverse modification”), the Bureau reinitiated consultation with the Service.  In 2005, FWS reissued concurrence letters reaching the same conclusion.  The concurrence letters incorporated by reference sections of the biological opinion for the Long-Term CVP and State Water Project Operations Criteria and Plan (known as “OCAP”).  Following completion of the Service’s ESA consultation, the Bureau renewed contracts with both the Settlement Contractors and the DMC Contractors.

In 2005, plaintiffs filed suit challenging the 2005 OCAP biological opinion.  The lawsuit also included claims that the Bureau violated its legal obligations under Section 7(a)(2) of the ESA by renewing the DMC and Settlement Contracts. After reviewing the 2005 biological opinion, a district court held it was  unlawful for failing to adequately consider impacts to the Delta smelt’s critical habitat, failing to rely on the best available scientific information, and for not including mandatory mitigation measures to protect the Delta smelt. The district court remanded the 2005 OCAP biological opinion without vacatur, ordered the Bureau and the Service to re-consult, and imposed interim measures that automatically expired on the issuance of a new biological opinion.

The Service filed a new biological opinion in 2008 that concluded the CVP and SWP operations were likely to threaten the Delta smelt and identified “reasonable and prudent alternatives” to avoid jeopardy.  Following the issuance of the 2008 biological opinion, plaintiffs filed another complaint alleging that the Bureau had violated Section 7(a)(2) of the ESA by renewing the DMC and Settlement Contracts. Each side moved for summary judgment, and the district court granted summary judgment for the defendants. The District court found that plaintiffs lacked standing to challenge the DMC contracts, and that the Settlement Contracts were not subject to Section 7(a)(2).

The Ninth Circuit’s Opinion

The Ninth Circuit first rejected defendants’ argument that the issuance of the 2008 biological opinion by the Service rendered plaintiffs’ claims moot.  The court explained the claims were not moot because, unlike its prior cases where a new biological opinion clearly replaced the old opinion, in this case there was ongoing litigation regarding the validity of the 2008 opinion and a district court decision in a separate matter holding that parts of that 2008 opinion violated the ESA.   The Ninth Circuit also held the claims were not moot because it was unclear if the contracts at issue were considered in the 2008 opinion.

The Ninth Circuit then addressed plaintiffs’ standing to challenge the DMC contracts. The court determined plaintiffs failed to establish a causal connection between the threatened injury and the Bureau’s action because the DMC contracts included a shortage provision which expressly allowed the Bureau to take action to meet its legal obligations. These actions could include not delivering water to DMC Contractors if necessary in order to comply with the ESA. Therefore, the threatened injury, jeopardy to Delta smelt, would not be traceable to the contract renewals because the contracts expressly allowed for compliance with Section 7(a)(2). Based on this reasoning, the Ninth Circuit concluded the lower court properly determined the plaintiffs lacked standing to challenge the DMC contracts.

After addressing the DMC Contracts, the Ninth Circuit considered the applicability of Section 7(a)(2) to the Settlement Contracts. With respect to the Settlement Contracts, the Ninth Circuit ruled there was no “discretionary action” triggering the duty to consult under section 7(a)(2) of the ESA.  Citing the Supreme Court’s decision in Nat’l Ass’n. of Home Builders v. Defenders of Wildlife, 551 U.S. 644, 666 (2007), the Court explained that “Section 7(a)(2) of the ESA only applies to federal agency action ‘in which there is discretionary Federal involvement or control.’”  The Ninth Circuit, therefore, held the lower court properly determined that the Bureau’s renewal of the Settlement Contracts was not subject to Section 7(a)(2) because the action was not discretionary.

The court explained that under the Reclamation Act of 1902, the Bureau must operate the CVP in conformity with California water law, including full recognition of any vested right acquired under California law. Under the state law, senior appropriative water rights must be satisfied before junior water rights. Under the Settlement Contracts, the Bureau is required to deliver base supply water that may only be reduced in critically dry years. This duty to deliver is mandatory, and under the Central Valley Project Improvement Act, the Bureau is required to renew these contracts upon request. Due to this requirement, the Bureau’s discretion was limited with regard to the Settlement Contracts such that Section 7(a)(2) of the ESA was not triggered. Based on this reasoning and lack of standing, the Ninth Circuit upheld the district court’s grant of summary judgment in favor of the defendants. (By John Wheat)