What Does the Supreme Court’s Ruling on Section 401 Mean for Residential and Commercial Developers?

April 14, 2022

The Clean Water Act and Section 401

In 1948, Congress passed the Federal Water Pollution Control Act (FWPCA) as the first rendition of a law intended to address growing pollution of American waters. By 1972, increased awareness of severe water pollution issues and high-profile incidents (such as Cleveland’s own infamous Cuyahoga River fire in 1969) drove Congress to enact a sweeping amendment to the FWPCA—thereafter becoming commonly known as the Clean Water Act (CWA).

One important aspect of the 1972 amendments to the CWA was Section 401 (401), which prohibited the discharge of pollutants into U.S. navigable waters or Waters of the United States (WOTUS). 401 also enlisted the help of states and certain recognized tribes in curbing pollution by granting them the power to deny necessary certifications for new projects or development that may result in such discharge.

Impact of Section 401 on Residential and Commercial Development

While much of the focus on the impact of 401 has been on the energy sector—specifically interstate energy pipelines—401 also has a clear effect on residential and commercial developers. 401 prohibits the discharge of dredged or fill material into WOTUS, which encompasses many of the activities necessary to level and grade property to make it suitable for the new development of homes and businesses.

This impact is compounded by the EPA and U.S. Army Corps of Engineers’ recent expansion of the definition of WOTUS. Under new guidance, WOTUS is defined as not only the traditionally navigable waters of the United States (i.e., territorial ocean waters, lakes and rivers), but also any tributaries of any kind that feed into such waters, including their associated wetlands. The result is that streams, creeks, local wetlands and even floodplains are considered WOTUS. Therefore, 401 prohibits the discharge of dredged and fill material into them. States, tribes and the EPA have frequently used 401 to prevent certification of new residential and commercial development projects located near minor bodies of water, even where proper precautions can be taken and the risk of any discharge is extremely low.

The Use and Abuse of Section 401

While the CWA’s positive impact on the health and safety of American waters has been clearly documented over time (you can kayak in the Cuyahoga River now), 401 has become a flashpoint for industrial and environmental interest groups alike. 401 has been widely criticized by developers as being so vague as to allow states, tribes and the EPA to consider factors other than pollution in their denial of certification of new projects. For example, the States of Washington, Oregon, New York and New Jersey, among others, have used 401 authority to block various oil and natural gas pipeline projects not based on pollutant factors, but instead on downstream effects on the climate. Opponents of a broad 401 argue that Congress never intended for such factors to be included in the calculus of granting or denying certification. Conversely, environmental groups argue a broad 401 is necessary for states to address climate change in the absence of more direct Federal action.

Trump Era Changes to Section 401

Citing the alleged confusion that a broad 401 was causing in the development of new energy projects, former President Trump signed Executive Order 13868 on “Promoting Energy Infrastructure and Economic Growth” (the “Order”). The Order directed the EPA to review then current regulations under 401 and to implement more straightforward direction.

Subsequently, the EPA proposed new guidance on 401 (the “New Rule”) which narrowed the scope of activities that would trigger state, tribal and EPA authority to deny certification of new development and projects. Under the New Rule, 401 authority is contingent on identifying actual or potential discharge of identified pollutants from an identifiable “point source,” such as a pipe, ditch or other ‘‘discernible, confined and discrete conveyance.” Other factors, such as potential downstream climate effects, cannot be considered in a denial of certification.

Litigation Over Section 401 and Supreme Court Ruling

Almost immediately after the New Rule was proposed, California, New York, Washington and 17 other states sued the federal government to enjoin its enforcement. The U.S. District Court for the Northern District of California stayed the New Rule. Interested parties, including several industry groups and a group of states led by Louisiana, appealed to the Ninth Circuit to lift the stay, pending appeal—a request which the Ninth Circuit denied.

On April 7, 2022, by a 5-4 split, the Supreme Court of the United States granted the appellants’ request to lift the stay via the Court’s so-called shadow (emergency) docket without opinion. Writing for the dissenting Justices, which included Chief Justice John Roberts, Justice Elena Kagan criticized the ruling as an abuse of the Court’s emergency docket, stating that the appellants had failed to identify any actual harm that the stay threatened while the appeal was pending.

The result, for now, is that the New Rule will remain in effect pending the final disposition of the case, which remains ongoing.

For better or worse, the reinstatement of the New Rule may bring short-lived relief to developers and industry groups who will benefit from the tightened standards on State and Tribal authority. However, the Biden administration has signaled its intent to revise 401 further, a move that may result in yet more new guidance by the EPA, and which may very well render the New Rule, and the litigation surrounding it, moot.

While the guidance around 401 remains fluid, KJK’s Real Estate and Environmental Law Attorney’s can help navigate current and future changes. Contact Matt Viola (MTV@kjk.com; 216.736.7253), or Jim Scherer at (JJS@kjk.com; 216.736.7296) for more information.