In Butte Environmental Council v. United States Army Corps of Engineers (9th Cir. 2010) 607 F.3d 570, Butte Environmental Council sued the Army Corps of Engineers, the Fish and Wildlife Service, and the City of Redding over their decisions to permit a proposed business park in Redding that would destroy 234.5 acres of critical habitat along Stillwater Creek in Redding. Specifically, the Council challenged the Corps’ decision under the Administrative Procedure Act to issue a Clean Water Act section 404 permit for the project and the FWS’s biological opinion that the project would not adversely modify critical habitat for endangered and threatened species.

Endangered Species Act Challenges. The Ninth Circuit, like the district court, upheld the FWS’s determination that the project would not result in the “adverse modification” of critical habitat. The Court first rejected the Council’s argument that the FWS applied an improper definition of “adverse modification” and thus failed to account for “recovery needs” of the affected species as required by Gifford Pinchot Task Force v. U.S. Fish & Wildlife Service (9th Cir. 2004) 378 F.3d 1059.). Gifford Pinchot found fatally flawed a critical habitat analysis that relied on an unlawful regulatory definition of “adverse modification” set out in 50 C.F.R. 402.02. (See Gifford Pinchot, 378 F.3d at p. 1070 [taking issue only with the use of “and” instead of “or” in the regulatory definition of “adverse modification”].) In rejecting the Council’s argument, the Court pointed to the FWS’s statement in the biological opinion that it did not rely on the flawed definition of “adverse modification” of critical habitat set out in 50 C.F.R. 402.02, but instead, relied upon the statute and the decision in Gifford Pinchot for its analysis with respect to critical habitat. In reaching this conclusion, the Court noted that nothing in the biological opinion suggested otherwise.

In perhaps the most significant ruling in the case, the Court explained that Gifford Pinchot did not alter the rule that “‘adverse modification’ occurs only when there is ‘a direct or indirect alteration that appreciably diminishes the value of critical habitat.’” The Court explained that “critical habitat can be destroyed without appreciably diminishing the value of the species’ critical habitat overall.” Therefore, the Court held that FWS’s determination that, while critical habitat would be destroyed, no “adverse modification” would occur because only a very small percentage of the total critical habitat for the affected species would be eliminated. FWS in the biological opinion explained that the affected 234.5 acres of critical habitat along Stillwater Creek in Redding, California would amount to only 0.04% of the vernal pool fairy shrimp’s 597,821 acres of total critical habitat nationwide and only 0.10% of the vernal pool tadpole shrimp’s 228,785 acres of total critical habitat nationwide.

Clean Water Act Challenges. The Court also held that the Corps decision to issue a 404 permit for the project was neither arbitrary nor capricious. First, the Court concluded that the Corps properly applied 40 C.F.R. § 230.10(a)(3), the regulation that applies to non-water dependent activities. That regulation states that, where a proposed activity is not water dependent, “practicable alternatives that do not involve special aquatic sites are presumed to be available, unless clearly demonstrated otherwise.” The Court held that the Corps applied the proper presumption and found that it was rebutted under the appropriate standard. The Corps’ had determined that the project was not water dependent, but that, based on a review of over a dozen alternative sites, the City had “clearly demonstrated that there are no practicable alternative sites available.”

Second, the Court rejected the Council’s argument that the Corp’s decision to issue the permit was inconsistent with its earlier criticisms of the project in an Environmental Impact Statement. The Court concluded that the Council’s argument ignored evidence in the record that the City modified the project to address the Corps’ early criticisms. The Court also stated that agencies are entitled to change their minds and that it had no “trouble discerning the path of the agency’s reasoning over time.”

Third, the Court rejected the Council’s claim that the Corps “simply deferred” to the City’s judgment rather than making an independent determination of the business park’s purpose. The Court disagreed, pointing out that the Corps’ initial project criticisms, which resulted in project changes. Only after the City modified the project did the Corps agree with the City’s point of view. Noting that the Corps has a duty to consider an applicant’s purposes when they are “genuine and legitimate,” the Court found the Corps’ action to be reasonable on this point.