May 6th, 2024

When The Government Acts Arbitrarily: Lessons Learned from O’Reilly v. All State Financial Company

A “404 permit” is issued by the U.S. Army Corps of Engineers (“Army Corps”) under Section 404 of the Clean Water Act, regulating activities that involve the discharge of dredged or fill material into waters of the United States, such as wetlands.

A “404 permit” is issued by the U.S. Army Corps of Engineers (“Army Corps”) under Section 404 of the Clean Water Act, regulating activities that involve the discharge of dredged or fill material into waters of the United States, such as wetlands. These permits are essential for property owners, developers, and environmental advocates who engage in projects impacting water bodies. Whether you're a property owner, developer, or environmental advocate, it's crucial to grasp how courts decide whether the Army Corps’s permit actions are arbitrary and capricious or allowable.

The recent decision by the United States Court of Appeals for the Fifth Circuit in O’Reilly v. All State Financial Company sheds light on the challenges and strategies involved in obtaining a 404 permit for environmental projects. This case serves as a notable example of how regulatory oversight in environmental permitting can shape outcomes and underscore the standards agencies must uphold.

In O’Reilly, the plaintiffs successfully challenged the Corps’ issuance of a Section 404 permit. At issue was the Timber Branch II residential development project (“the Project”), a proposed multiuse commercial and residential development located in Louisiana.  The Project required the Army Corps’ permission because it involved the filling of jurisdictional wetlands; the Project would affect 69.19 forested acres, with wetlands comprising more than a third of those acres.  The wetlands were adjacent to two rivers and the Project lay within a flood hazard area. To develop the area, the defendant would need to fill the wetlands with concrete.

In their challenge, the plaintiffs argued that the Army Corps failed to adequately consider the Project’s potential environmental impacts of the project in violation of the Clean Water Act and the National Environmental Policy Act.  The Fifth Circuit agreed, finding that although the Army Corps’ Environmental Assessment (EA) should be concise, it must still provide enough evidence and analysis to determine whether an Environmental Impact Statement (EIS) is necessary or if a Finding of No Significant Impact (FONSI) can be issued. Since the EA in question lacked sufficient detail, it was unclear whether the project would have a significant effect on the environment, leaving it an open question. Therefore, the court enjoined the Corps from issuing a Section 404 permit, and remanded the case for, among other actions, preparation of a new EA consistent with the court’s opinion.

Central to the court's decision was the determination that the Army Corps had acted arbitrarily and capriciously in its reliance on the EA. Here's how the court arrived at this conclusion:

  1.  Lack of Detail and Explanation:
    The court found that the EA lacked sufficient detail and explanation for its significance determinations. It criticized the Army Corps for failing to provide adequate reasoning behind its findings of no or minor effects on various environmental factors related to wetlands or other wildlife.
  2.  Failure to Independently Evaluate Information:
    Additionally, the court noted that the Army Corps did not independently evaluate the information submitted by the project applicant. Instead, it simply relied on the analysis provided by the Defendant’s expert witness. This failure to conduct an independent assessment raised questions about the thoroughness and impartiality of the evaluation process.
  3. Lack of Response to Public Comments:
    The Army Corps was also faulted for its failure to respond adequately to public comments on the EA. The court emphasized the importance of public participation in the environmental review process and highlighted the Corps' obligation to address public concerns in a meaningful manner.
  4. Absence of Cumulative Impact Analysis:
     Furthermore, the court found that the Corps did not conduct a meaningful cumulative impact analysis, as required by both the Clean Water Act and National Environmental Policy Act. This failure to assess the cumulative effects of the project alongside other existing and planned activities in the area undermined the integrity of the environmental review process.

In light of these findings, the court concluded that the Corps' actions failed to meet the standards required by law. Its failure to provide detailed explanations, independently evaluate information, respond to public comments, and conduct a comprehensive cumulative impact analysis constituted arbitrary and capricious behavior in handling the EA.  While these issues may not arise in every government action, it's helpful to understand the court's perspective to evaluate the potential to challenge future actions.

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