The magazine’s April 19 legal webinar with National Association of Realtors® attorneys Ralph Holmen and Finley Maxson made a good jumping off point for a series of blog posts. In previous posts, I discussed the RESPA case, Freeman v. Quicken Loans (recently decided by the Supreme Court in favor of NAR’s position; see “Supreme Court Provides Clarity on Brokerages’ Administrative Fees”) and the Fair Housing case Gallagher v. Magner. This week, I explore the property rights victory in Sackett v. Environmental Protection Agency.
NAR First Vice President Steve Brown wrote about the case in the NAR Leadership Team’s Voices of Real Estate blog (“The Supremes Rule”), and even though this case has been covered quite a bit, it’s worth examining more closely because it speaks so profoundly to an issue that’s at the core of NAR’s purpose—private property rights. The plaintiffs, Michael and Chantell Sackett, bought land in 2005 with the intention of building a house on it. Today, despite the Supreme Court decision in their favor, the Sacketts are still living in a leased property and waiting to build that house—and it’s quite possible their case could be in the courts for several years, according to their attorney, Damien Schiff of the Pacific Legal Foundation.
I wanted to offer a closer look at what the Supreme Court did and didn’t resolve—and to look at what else real estate practitioners should consider when they’re selling land in wetlands areas.
The Issue: What rights do property owners have to challenge Environmental Protection Agency determinations?
The Law: The U.S. Environmental Protection Agency is charged with writing rules for and enforcing environmental laws, such as the Clean Air Act and the Clean Water Act. Among provisions of the Clean Water Act are rules regarding the preservation of wetlands, defined by the EPA as “those areas that are inundated or saturated by surface or groundwater at a frequency and duration sufficient to support, and that under normal circumstances do support, a prevalence of vegetation typically adapted for life in saturated soil conditions. Wetlands generally include swamps, marshes, bogs and similar areas.”
The Clean Water Act gives the EPA authority to regulate development on a wetland that’s in the area of a “traditional navigable water”—but property owners have often been at odds with the agency over (a) what constitutes a navigable water and (b) what relationship that water and the wetland need to have. This conflict has resulted in owners seeking to challenge so-called EPA wetlands determinations in court. In the past, judges have held that EPA determinations couldn’t be challenged in court by property owners. It sounds ludicrous, but to get their day in court, owners had to fail to comply with the determination and wait to be sued by the agency. In the case National Association of Home Builders v. U.S. Environmental Protection Agency, for example, the plantiffs sought judicial review of an EPA determination, but a district court granted an EPA and Army Corps of Engineers’ motion to dismiss on the grounds that the agencies must be able to administer the Clean Water Act “without becoming entangled in premature litigation.” The Sacketts faced the same barrier.
The Case: Michael and Chantell Sacketts owned a 2/3-acre lot within a developed subdivision that already had a sewer infrastructure in place. The subdivision overlooks Priest Lake in the Idaho panhandle. As my colleague Rob Freedman explained in a post written before the Supreme Court decision came down, “The couple secured local building permits and even received a verbal okay from the U.S. Army Corps of Engineers that the property, which has water on it periodically but isn’t adjacent to any standing body of water, is not a wetlands.”
But when the Sacketts began taking the first steps toward building a house—filling in a portion of their lot with dirt and rocks—EPA officials ordered them to stop and to restore the property to its original state. The Sacketts asked for an EPA hearing but were denied, so they brought the case to the U.S. District Court for the District of Idaho. They said the EPA’s order was “arbitrary [and] capricious” under the Administrative Procedures Act (APA) and that their inability to gain judicial review violated the Fifth Amendment, which states that “No person shall be . . . deprived of life, liberty, or property without due process of law.” Their court dismissed their claims, and the U.S. Court of Appeals for the Ninth Circuit affirmed the lower court’s ruling.
In 2011, the Supreme Court agreed to hear the case. Along with a number of other organizations, NAR filed an amicus curiae brief that pointed out, among other things, that environmental groups have had no trouble gaining judicial review of agency determinations. “Thus,” the brief said, “as it now stands, judicial review of jurisdictional determinations is a one-way ratchet . . ..”
The Decision: On March 21, 2012, the Supreme Court affirmed NAR’s position, granting the Sacketts the right to challenge the EPA determination. The justices unanimously rejected the government’s assertion that the EPA determination wasn’t a “final order,” and thus wasn’t subject to judicial review.
The Sacketts’ case is now back in District Court—and the couple will get their day in court. The chance of success depends on the evidence. “We don’t know what is in the EPA’s record,” Schiff says. “They never had to file evidence. I’m hopeful that sometime this year, the EPA will file its record and we’ll be able to see what evidence the agency has to support its determination. I suspect there’s not much because EPA was never on the property.”
Even if the judge decides in the Sacketts’ favor, the case could be held up for years in appeals.
Why It’s Significant for Real Estate Professionals:
Unfortunately, when it comes to wetlands, there’s no blanket rule you can follow to counsel clients. “You can have wetlands experts disagree among themselves about what constitutes a wetland, so determinations will continue to be made on a case-by-case basis,” Schiff says.
After Sackett, however, property owners who receive an EPA compliance order now have means to challenge the order. “Obviously, it doesn’t mean that every single compliance act will become the subject of litigation,” Schiff says, “but [owners] now have a bargaining chip.”
Will Sackett change the way EPA makes determinations? “I certainly think so,” Schiff says. “Senior official have said they don’t think the decision will have much effect in practice. In my view, I don’t see how it cannot. It makes sense that an agency knows that if it can’t be held to accountable, it will act differently. Because it now knows that it can be held to accountable, it’ll spend more time researching before it makes a determination. If has to submit records to court, the agency has an incentive to do a better job.”
One issue the Sackett decision doesn’t address is federal reach. That is, which wetlands does the federal government have the right to regulate and which are off limits? “That’s been the subject of litigation for last two decades,” Schiff says. In a concurring opinion to Sackett, Justice Alito takes a direct stab at the issue of federal reach, calling on Congress to provide guidance: “ . . . the combination of the uncertain reach of the Clean Water Act and the draconian penalties imposed for the sort of violations alleged in this case still leaves most property owners with little practical alternative but to dance to the EPA’s tune. Real relief requires Congress to do what it should have done in the first place: provide a reasonably clear rule regarding the reach of the Clean Water Act.”
In this election year, I don’t expect the issue to be high on Congress’s list.
What Else Do You Need to Know About Selling in Wetlands Areas?
The Sackett decision doesn’t free buyers from the need to conduct due diligence. Before they sign a purchase contract, buyers who plan to make improvements or continue an existing commercial use are strongly encouraged to engage a qualified environmental consultant. Among other things, the consultant can help determine whether any environmental reporting or permitting is required for their intended use of the property. The “Real Estate Acquisition Due Diligence Checklist,” provided courtesy of Minneapolis attorney Andy Jacobson, provides a good starting point; however, buyers in your area should be sure to consult an attorney who knows the state and local rules and regulations that apply.
To learn more about wetlands, visit these sites:
National Wetlands Inventory from the National Fish & Wildlife Service: http://www.fws.gov/wetlands/
New York Times Op-Ed: Where Are the Clean Water Rules?
NAR’s Field Guide to Land Investment (updated June 2012)
Remember: If you have questions about how or whether a law or case applies to your situation, seek the counsel of a qualified attorney.
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