American Bar Association Section of Environment, Energy, and Resources

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1 American Bar Association Section of Environment, Energy, and Resources Is There Really a Duty to Consult? Section 7 of the Endangered Species Act, Federal Water Management, and the Discretionary Function Requirement Robin Kundis Craig William H. Leary Professor of Law, University of Utah S.J. Quinney College of Law Salt Lake City, Utah 31st Annual Water Law Conference Las Vegas, Nevada June 5-7, 2013 ABSTRACT Section 7(a)(2) of the Endangered Species Act appears to require all federal agencies to consult with the two expert federal agencies when activities that the acting agencies authorize, fund, or carry out might affect species listed under the Act. This requirement can significantly affect federal water projects, a fact that has been clear since the U.S. Supreme Court s 1978 decision in Tennessee Valley Authority v. Hill. However, in 1986 the two expert agencies promulgated a joint regulation that limited Section 7 s applicability to actions for which there is discretionary Federal involvement or control, and in 2007 the Court upheld that regulation in National Association of Home Builders v. Defenders of Wildlife. The discretionary function regulation now gives the federal agencies that manage water projects a viable legal argument that they do not have to engage in Section 7 consultations with respect to at least some of their water management activities. As a result, in a trio of 2012 decisions involving federal water management, the Ninth Circuit the most active circuit applying the regulation developed a two-part test for determining whether Section 7 consultation is required that is likely to govern federal water projects for some time to come. Introduction Section 7(a)(2) of the federal Endangered Species Act ( ESA ) imposes a mandatory duty on all federal agencies to insure that any action authorized, funded, or carried out by such agency (hereinafter in this section referred to as an agency action ) is not likely to jeopardize the continued existence of any endangered species or threatened species. 1 Agencies fulfill this duty by consulting informally and formally with the Act s two expert agencies: The U.S. Fish & Wildlife Service ( USFWS ), which acts on behalf of the Secretary of the Interior with respect to terrestrial and most freshwater species; and the National Marine Fisheries Service ( NMFS ), which acts on behalf of the Secretary of Commerce with respect to most marine and anadromous 1 16 U.S.C. 1536(a)(2) (2012). 1

2 species. 2 Formal consultation requires the acting federal agency to produce a Biological Assessment and the expert agency to produce a Biological Opinion 3 and can result in findings of jeopardy, reasonable and prudent alternatives ( RPAs ) to the agency s proposed action to mitigate harms to listed species, 4 and/or an Incidental Take Statement ( ITS ), which insulates the acting agency from take liability under Section 9. 5 In the water law context, application of Section 7 to can have significant effects on federal water projects, as was demonstrated in the U.S. Supreme Court s very first ESA decision, Tennessee Valley Authority v. Hill. 6 Despite Section 7(a)(2) s mandatory language, since 1986 the USFWS and NMFS have specified in their joint ESA regulations that Section 7 and the requirements of [the implementing regulations for Section 7] apply to all actions in which there is discretionary Federal involvement or control. 7 This discretionary function requirement nevertheless remained a fairly dormant part of ESA jurisprudence until June 2007, when the U.S. Supreme Court decided National Association of Home Builders v. Defenders of Wildlife ( NAHB ), 8 a case that pitted the U.S. Environmental Protection Agency s ( EPA s ) duties under the Clean Water Act 9 against its ESA Section 7 duty to consult. Since NAHB, the discretionary function requirement has become an increasingly important factor in whether Section 7 applies in the context of water law, especially with respect to water projects that federal agencies manage. This paper summarizes the current state of the law regarding the discretionary function requirement s application to water projects. It begins with the expert agencies regulation and case law application of that regulation prior to The paper then summarizes the Supreme Court s decision in NAHB before examining in more detail the regulation s application to water projects and the new test created in the U.S. Court of Appeals for the Ninth Circuit. The Beginnings of the Discretionary Function Requirement The USFWS s and NMFS s 1986 discretionary function regulation was part of a large rulemaking that established all of the procedural requirements for Section 7 consultations. 10 Notably, water resource issues were already recognized as a significant specific context for Section 7 consultations. 11 The discretionary function regulation itself, however, was noncontroversial. In the proposed rule, the agencies offered no explanation for this requirement, 12 while in the final rule, they clarified only that the regulation implicitly covers Federal activities within the territorial jurisdiction of the United States and upon the high seas as a result of the definition of action in Interagency Cooperation Endangered Species Act of 1973, as Amended; Final Rule, 51 Fed. Reg. 19,926, 19,926 (June 3, 1986) U.S.C. 1536(b)(3)(A) (2012); 50 C.F.R (h)(3) (2012) U.S.C. 1536(b)(3)(A) (2012); 50 C.F.R (h)(3) (2012) U.S.C (2012) U.S. 153 (1978). In this decision, the Court ruled that Section 7 required it to enjoin completion of the nearlyconstructed Tellico Dam, despite the money already invested and continuing congressional appropriations for the dam, because the dam would jeopardize the listed snail darter. Id. at Fed. Reg. 19,926, 19,957 (June 3, 1986), codified at 50 C.F.R U.S. 644 (2007) U.S.C (2012). Specifically, the case examined the EPA s duty to delegate permit programs to states pursuant to Section 402 of the Act. Id. 1342(b) Fed. Reg. 19,926, 19,926 (June 3, 1986). 11 Id. at 19, See generally Interagency Cooperation; Endangered Species Act of 1973, 48 Fed. Reg. 29,990 (June 29, 1983) (offering no explanation for the proposed new ) Fed. Reg. 19,926, 19,937 (June 3, 1986). 2

3 Before 2007, the discretionary function regulation, 50 C.F.R , had a limited impact on ESA cases. It was cited in only 36 federal court decisions between 1986 and June 2007, first appearing in August 1994 in the U.S. District Court for the Southern District of Florida s opinion in Florida Key Deer v. Stickney. 14 That court concluded that: (1) Section 7(a)(2) applies to any federal agency action, and hence there cannot be a federal discretion requirement; (2) as indicated in the expert agencies final rulemaking language quoted above, 50 C.F.R pertained to geographical limitations; and (3) in any case, the Federal Emergency Management Agency ( FEMA ) had ample discretion to implement its flood control programs, so Section 7 applied. 15 Moreover, for over a decade after Florida Key Deer, the federal courts continued to resist the full import of 50 C.F.R , either just mentioning it in passing, 16 focusing issues of Section 7 s applicability on whether there was any agency action at all, 17 or, like the Southern District of Florida, refusing to give the regulation its literal meaning. 18 Even the nine (one of which was later reversed) decisions that applied the regulation to obviate Section 7 consultations did so only in the limited context where the federal agency lacked any ability because of statutory mandates or lack of statutory authority, because of lack of control over thirdparty actors, or because the action was already complete and application of Section 7 would be retroactive to change, alter, or influence its action to protect ESA-listed species. 19 National Association of Home Builders v. Defenders of Wildlife The USFWS s and NMFS s discretionary function requirement necessarily requires that federal courts interpret an acting agency s statutory authority or, especially in the water law context, its contractual authority to determine whether that agency has sufficient discretion to F. Supp (S.D. Fla. 1994). 15 Id. at Alabama-Tombigbee Rivers Coal. v. Norton, 338 F.3d 1244, 1247 (11th Cir. 2003); Sierra Club v. Glickman, 156 F.3d 606, 618 (5th Cir. 1998); Defenders of Wildlife v. Gutierrez, 484 F. Supp. 2d 44, 53 (D.D.C. 2007); Northwest Envtl. Advocates v. NMFS, 2005 WL , at *9 (W.D. Wash. 2005), aff d, 460 F.3d 1125 (9th Cir. 2006); Pacific Coast Fed. of Fishermen s Ass ns v. U.S. Bur. of Reclam., 138 F. Supp. 2d 1228, 1240 (N.D. Cal. 2001); Hawksbill Sea Turtle v. FEMA., 11 F. Supp. 2d 529, 546 n.24 (D.V.I. 1998), remanded without opinion, 215 F.3d 1314 (3rd Cir. 2000); Marbled Murrelet v. Babbitt, 1997 WL , at *6 (N.D. Cal. 1997); Marbled Murrelet v. Babbitt, 1996 WL , at * 2 (N.D. Cal. 1996). 17 Cal. Sportfishing Prot. All. v. FERC, 472 F.3d 593, (9th Cir. 2006); Western Watersheds Proj. v. Matejko, 468 F.3d 1099, (9th Cir. 2006), superseding 456 F.3d 922 (9th Cir. 2006); NRDC v. Houston, 146 F.3d 1118, (9th Cir. 1998); International Ctr. for Tech. Assess. v. Thompson, 421 F. Supp. 2d 1, (D.D.C. 2006); Karuk Tribe of Cal. v. U.S. Forest Serv., 379 F. Supp. 2d 1071, (N.D. Cal. 2005), aff d, 640 F.3d 979, (9th Cir. 2011); National Wildlife Fed. v. NMFS., 2005 WL , at *8-*9 (D. Or. 2005); Washington Toxics Coal. v. EPA, 2002 WL , at *4-*5 (W.D. Wash. 2002); Environmental Prot. Info. Ctr., Inc. v. Pac. Lumber Co., 67 F. Supp. 2d 1113, (N.D. Cal. 1999), vacated on standing grounds, 257 F.3d 1071 (9th Cir. 2001); Environmental Prot. Info. Ctr., Inc. v. Pac. Lumber Co., 67 F. Supp. 2d 1090, 1108 (N.D. Cal 1999), vacated on standing grounds, 257 F.3d 1071 (9th Cir. 2001); Cromon Corp. v. U.S., 44 Fed. Cl. 796, (Fed. Cl. 1999); Southwest Ctr. for Biol. Diversity v. FERC, 967 F. Supp. 1166, (D. Ariz. 1997). 18 National Wildlife Fed. v. NMFS, 481 F.3d 1224, 1234 (9th Cir. 2007); Rio Grande Silvery Minnow v. Keys, 469 F. Supp. 2d 973, 994 (D.N.M. 2002), vacated in light of a superseding Biological Opinion, 601 F.3d 1096 (10th Cir. 2010). But see Defenders of Wildlife v. Norton, 257 F. Supp. 2d 53, 67 (D.D.C. 2003) (holding that Tennessee Valley Authority did not require the invalidation of the discretionary function regulation). 19 Ground Zero Center for Non-violent Action v. U.S. Dept. of the Navy, 383 F.3d 1082, 1092 (9th Cir. 2004); Environmental Prot. Info. Ctr. v. Simpson Timber, 255 F.3d 1073 (9th Cir. 2001); Marbled Murrelet v. Babbitt, 83 F.3d 1068, (9th Cir. 1996); Sierra Club v. Babbitt, 65 F.3d 1502, (9th Cir. 1995); National Wildlife Fed. v. FEMA, 345 F. Supp. 2d 1151, 1174 (W.D. Wash. 2004); Defenders of Wildlife v. Norton, 257 F. Supp. 2d 53, (D.D.C. 2003); Center for Biol. Diversity v. NMFS, 2001 WL , at *2-*4 (N.D. Cal. 2001), rev d to find that the agency did have the requisite discretion and authority to be subject to Section 7, sub nom Turtle Island Restoration Net. v. NMFS, 340 F.3d 969, (9th Cir. 2003); WaterWatch of Or. v. U.S. Army Corps of Eng s, 2000 WL , at *5 (D. Or. 2000); Strahan v. Linnon, 967 F. Supp. 581, (D. Mass. 1997), aff d, 187 F.3d 623 (1st Cir. 1998). 3

4 modify its proposed actions to make Section 7 consultation meaningful. As with all acts of statutory and contractual construction, courts construing the same language can reach different results. Thus, the U.S. District Court for the Northern District of California concluded that NMFS lacked discretion to impose conditions on fishing permits to protect species of sea turtles listed under the ESA, 20 but the Ninth Circuit reversed, finding that [t]he plain language of the [High Seas Fishing] Compliance Act provides Fisheries Service with ample discretion to protect listed species because Congress had used broad language ( including but not limited to ) to describe NMFS s authorities under that Act. 21 In addition, although the statute of limitations has long since run on facial challenges to 50 C.F.R , federal courts nevertheless have long recognized that the regulation is in tension with both the broad language of Section 7(a)(2) itself 22 and with the sweeping language in Tennessee Valley Authority. 23 Thus, in the lower decision resulting in the NAHB Supreme Court decision, the Ninth Circuit interpreted the expert agencies regulation to square it with Section 7(a)(2) s broad applicability, concluding that the discretionary... involvement regulation [is] coterminous with the statutory phrase limiting section 7(a)(2) s application to those cases authorized, funded, or carried out by a federal agency. 24 Nevertheless, in NAHB, the Supreme Court eschewed any attempt to reconcile apparently conflicting federal statutes in favor of interpretations of agency statutory authority that eliminated Section 7 s consultation requirement. The case involved the EPA s delegation of Clean Water Act permitting authority to the State of Arizona. 25 The Clean Water Act requires the EPA to transfer the permitting program to any state that meets nine statutory criteria. 26 The issue for the Court was whether the EPA had to consult with the expert agencies pursuant to ESA Section 7 or, as the Court put it, whether 7(a)(2) effectively operates as a tenth criterion on which the transfer of permitting power under the first statute must be conditioned. 27 The Court concluded, 5-4 in an opinion authored by Justice Alito, that Section 7 did not apply. 28 First, the Clean Water Act left the EPA with no discretion: By its terms, the statutory language is mandatory and the list exclusive; if the nine specified criteria are satisfied, the EPA does not have the discretion to deny a transfer application. 29 Notably, however, the Court also accorded Chevron and Auer deference to the USFWS s, NMFS s, and EPA s own interpretations that Section 7 did not apply to Clean Water Act permit program delegations, 30 effectively giving these agencies considerable authority to decide the scope of their own Section 7 duties. Second, applying the ESA as the Ninth Circuit did would effectively use the ESA to amend the Clean Water Act. 31 This was improper, because the Clean Water Act permitting provision does not just set forth minimum requirements for the transfer of permitting authority; it 20 Center for Biol. Diversity v. NMFS, 2001 WL , at *2-*4 (N.D. Cal. 2001). 21 Turtle Island Restoration Net. v. NMFS, 340 F.3d 969, 975 (9th Cir. 2003) U.S.C. 1536(a)(2) (2012) U.S. 153, , 188 (1978). 24 Defenders of Wildlife v. EPA., 420 F.3d 946, 969 (9th Cir. 2005), rev d sub nom National Ass n of Home Builders v. EPA, 551 U.S. 644 (2007) U.S.C. 1342(b) (2012). 27 National Association of Home Builders, 551 U.S. at Id. at Id. at 661; see also id. at (emphasizing this conclusion). 30 Id. at Id. at

5 affirmatively mandates that the transfer shall be approved if the specified criteria are met. The provision operates as a ceiling as well as a floor. 32 Third, the Court accorded Chevron deference to the USFWS s and NMFS s interpretation of Section 7 in 50 C.F.R , 33 concluding that [t]his interpretation harmonizes the statutes by giving effect to the ESA s no-jeopardy mandate whenever an agency has discretion to do so, but not when the agency is prohibited from considering such extrastatutory factors. 34 Unlike the Ninth Circuit (and other courts before it), therefore, the Court read to mean what it says: that 7(a)(2) s no-jeopardy duty covers only discretionary agency actions and does not attach to actions (like the NPDES permitting transfer authorization) that an agency is required by statute to undertake once certain specified triggering events have occurred. 35 Finally, the Court determined that its previous interpretations of Section 7, and especially its decision in Tennessee Valley Authority, did not require a different outcome. 36 Specifically, Tennessee Valley Authority was inapposite because the Court there had no occasion to answer the question presented in these cases. That case was decided almost a decade before the adoption in 1986 of the regulations contained in 50 CFR And in any event, the construction project at issue in TVA v. Hill, while expensive, was also discretionary. 37 In the wake of NAHB, therefore, the regulatory discretionary function requirement is to be given its full effect, with federal agencies having a strong argument that courts should give both the acting agencies interpretations of the existence and extent of their own discretion and the expert agencies applications of 50 C.F.R considerable deference. The Court also effectively cabined the broad mandatory language of Tennessee Valley Authority, validating a limitation on Section 7 s applicability that the decision itself would not appear to allow. Current Application of the Discretionary Function Requirement in the Water Law Context Water-Related Federal Agency Actions Pursuant to Statutes U.S. Bureau of Reclamation. A series of federal court decisions have held that, under the federal reclamation laws, the Bureau of Reclamation often retains sufficient discretion to trigger Section 7 consultation requirements. For example, the Ninth Circuit held that renewal of U.S. Bureau of Reclamation contracts in general triggers Section 7 consultation because the reclamation laws state that the government is to renew the contracts on mutually agreeable terms, 43 U.S.C. 485h-1(1), that water rights are based on the amount of available project water, 43 U.S.C. 485h-1(4), and that the Secretary of the Interior... has the discretion to set rates to cover an appropriate share of the operation and maintenance costs, 43 U.S.C. 485h(e). 38 Nevertheless, to trigger Section 7, any federal agency must have sufficient authority to influence directly the use of the water at issue, 39 and the specific language of statutes and other legal provisions governing Bureau projects remains important. For example, in 2003, the U.S. District Court for the District of Columbia held that the Bureau had no discretion to send 32 Id. 33 Id. at Id. at Id. at Id. at Id. at NRDC v. Houston, 146 F.3d 1118, 1126 (9th Cir. 1998). 39 Center for Biol. Diversity v. U.S. Dept. of Housing & Urban Dev., 541 F. Supp. 2d 1091, (D. Ariz. 2008), aff d, 359 Fed. Appx. 781 (9th Cir. 2009). 5

6 additional water down the Colorado River to help endangered species in the Gulf of California because [t]he formulas established by the Law of the River strictly limit Reclamation s authority to release additional waters to Mexico, and Section 7(a)(2) of the ESA does not loosen those limitations or expand Reclamation s authority. 40 Most recently, in its 2012 decision in Glen Canyon Trust v. U.S. Bureau of Reclamation, the Ninth Circuit affirmed the U.S. District Court for the District of Arizona in concluding that the Bureau of Reclamation lacked sufficient discretion in issuing Annual Operating Plans for the Glen Canyon Dam on the Colorado River to engage in Section 7 consultation regarding the endangered humpback chub. 41 The Colorado River Basin Project Act of and the Glen Canyon Protection Act of require these Annual Operating Plans, and the Colorado River Basin Project Act specifies that the Annual Operating Plans must describ[e] the actual operation [of the Dam] under the adopted criteria for the preceding compact water year and the projected operation for the current year. 44 Because the Secretary of the Interior adopted those criteria in the 1996 Record of Decision for its mandated Environmental Impact Statement under the National Environmental Policy Act, the Ninth Circuit concluded that the Bureau lacked the required discretion for Section 7 consultation, because the statute requires Reclamation to perform [a] specific non-discretionary act[] rather than achieve broad goals; namely, Reclamation does not have the discretion to select different operating criteria for the Dam by saying so in an [Annual Operating Plan]. 45 U.S. Army Corps of Engineers. In general, the analysis of whether a Section 7 consultation is required in the water law context will vary most widely for the Army Corps, which operates dams and reservoirs pursuant to a variety of federal statutory provisions. For example, the United States District Court for the District of New Mexico held that the Army Corps lacked sufficient discretion in the operation of its Middle Rio Grande dams and reservoirs to make Section 7 consultation meaningful, because the reservoirs have rather clear operating criteria, under which emergency deviation appears to be warranted only for short term situations of very limited duration and at the determination of the damsite manager. 46 In contrast, the U.S. Court of Appeals for the Eighth Circuit held that the Army Corps did have sufficient discretion under the federal Flood Control Act in its operation of Missouri River dams and reservoirs to trigger Section 7 consultation requirements, because the Flood Control Act does not mandate a particular level of river flow or length of navigation season, but rather allows the Corps to decide how best to support the primary interest of navigation in balance with other interests. 47 Other Federal Agencies. Through reasoning similar to the Supreme Court s in NAHB, the U.S. District Court for the Eastern District of California concluded in 2011 that FEMA lacks sufficient discretion to engage in Section 7 consultations when it makes flood insurance available 40 Defenders of Wildlife v. Norton, 257 F. Supp. 2d 53, (D.D.C. 2003). 41 Glen Canyon Trust v. U.S. Bur. of Recl., 691 F.3d 1008, 1011 (9th Cir. 2012) U.S.C (2012). 43 Pub. L. No , 1802(a), 1804(a), (c)(1)(a) (1992) U.S.C. 1552(b) (2012). 45 Id. at Rio Grande Silvery Minnow v. Keys, 469 F. Supp. 2d 973, (D.N.M. 2002), vacated in light of a superseding Biological Opinion, 601 F.3d 1096 (10th Cir. 2010). See also Miccosukee Tribe of Indians of Fla. v. U.S., 2009 WL , at *3 (S.D. Fla. 2009) (holding that Congress s command in the Omnibus Act that the Army Corps construct a bridge or causeway to replace the Tamiami Trail in the Everglades left the Army Corps with no discretion to consult pursuant to Section 7). 47 In re Operation of Missouri River Sys. Litig., 421 F.3d 618, 631 (8th Cir. 2005). 6

7 to eligible communities under the National Flood Insurance Act. 48 According to the court, the Act provides that FEMA shall make flood insurance available in only those States or areas (or subdivisions thereof) that meet certain criteria; as a result, once those criteria are met, the issuance of flood insurance to qualified applicants is mandatory, and, under Home Builders, is an act not subject to section 7 consultation. 49 More significantly, and proving once again that discretion is often in the eyes of the beholder, the Ninth Circuit wrestled in 2011 and 2012 with the U.S. Forest Service s obligations to consult regarding suction-dredge mining operations that affected ESA-listed salmon. In its 2011 opinion in Kanuk Tribe of California v. U.S. Forest Service, the court concluded that, under the Organic Administration Act 50 and the General Mining Law of 1872, 51 the Forest Service lacked authority to prevent miners from entering and attempting to mine in national forests. 52 As a result, in receiving the miners Notices of Intent to mine, the Forest Service engaged in no agency action and hence the discretionary function requirement was not relevant. 53 Fourteen months later, however, the Ninth Circuit sitting en banc reversed, applying its recently formulated two-step analyses. 54 First, after more closely examining the relevant mining law, the court determined that the Forest Service s mining regulations and actions demonstrate that the agency affirmatively authorized private mining activities when it approved the four challenged NOIs. 55 As a result, there was agency action sufficient to trigger Section 7. Second, the Forest Service retained sufficient discretion to make Section 7 consultation meaningful. The Ninth Circuit summarized its post-nahb view of the discretionary function requirement as follows: [T]o avoid the consultation obligation, an agency s competing statutory mandate must require that it perform specific nondiscretionary acts rather than achieve broad goals. An agency cannot escape its obligation to comply with the ESA merely because it is bound to comply with another statute that has consistent, complementary objectives. The competing statutory objective need only leave the agency some discretion. To trigger the ESA consultation requirement, the discretionary control retained by the federal agency also must have the capacity to inure to the benefit of a protected species. 56 Because the Forest Service has broad discretion to regulate how mining occurs within the national forests, it met this standard and had to engage in Section 7 consultation. 57 Federal Agency Actions with Respect to Water Contracts In general, water contracts have created more contentious litigation over Section 7 s applicability than water-related statutes, and this has been true since even before the NAHB 48 Coalition for a Sustainable Delta v. FEMA, 812 F. Supp. 2d 1089, (E.D. Cal. 2011) (citing 42 U.S.C. 4012). 49 Id U.S.C (1897) U.S.C. 22 (1872), as amended by 30 U.S.C. 612 (2006). 52 Karuk Tribe of Cal. v. U.S. Forest Serv., 640 F.3d 979, (9th Cir. 2011). 53 Id. at , 998 n Karuk Tribe of Cal. v. U.S. Forest Serv., 681 F.3d 1006, 1011 (9th Cir. 2012) (en banc), cert. denied sub nom New 49 ers, Inc. v. Karuk Tribe of Cal., --- U.S. ---, 133 S. Ct (2013). 55 Id. at Id. at 1024 (citations omitted). 57 Id. at

8 decision. 58 Notably, in several early cases the Ninth Circuit upheld the Bureau of Reclamation s decisions to go ahead and modify water contracts to effectuate the ESA s goals. 59 More recently, however, federal agencies have resisted Section 7 consultations for contracts renewals on the grounds that they lacked sufficient discretion to accommodate species in those renewals. The federal courts have often found otherwise. 60 For example, in 2002, the New Mexico District Court determined that the Bureau of Reclamation retained sufficient discretion in its contracts for the Middle Rio Grande Project and the San Juan-Chama Project to require consultation under Section 7(a)(2) with respect to the Rio Grande silvery minnow and the southwestern willow fly-catcher. 61 Contracts for the Middle Rio Grande Project included a provision regarding drought: Water Shortages On account of drouth [sic] and other causes, there may occur at times during any year a shortage in the quantity of water available from the reservoir storage complex for use by the District pursuant to this contract. In no event shall any liability accrue against the United States... for any damage, direct or indirect, arising out of any such shortage. 62 As a result, the court concluded that [t]he term drouth and other causes in the contract should be interpreted broadly in this case because drought and dryness are what affect the continued existence of the silvery minnow. Viewed together with BOR s [Bureau of Reclamation s] statutory duty to limit... diversions to amounts reasonably needed for beneficial use, BOR s discretion becomes even more manifest. 63 Similarly, contracts under the San Juan- Chama Project contained three provisions that vested the Bureau with sufficient discretion to require it to engage in Section 7 consultation: (1) a provision that [d]uring periods of scarcity when the actual available water supply may be less than the estimated firm yield, the contractors shall share in the available water supply pro rata with other contractors,....; (2) a clause immunizing [the Bureau of Reclamation] from liability for failure to deliver water to the contractors because of shortages resulting from drought and any other causes,...; and (3) a provision reducing contractors costs to reflect a higher portion of water going to fish and wildlife needs Since about 2005, however, the most complex set of cases involving water contracts and ESA Section 7 consultations have emerged from California s Central Valley Project, which delivers water from the Sacramento Bay Delta to points as far south as Los Angeles and San Diego. 65 The Bureau of Reclamation has been operating the Project in conjunction with California s State Water Project since the 1930s, 66 but the massive pumps that operate the system pose a continuing threat to the delta smelt, a tiny fish that the USFWS listed as endangered under the ESA in 1993, 67 while the water diversions themselves pose a threat to various listed species of 58 See, e.g., Rio Grande Silvery Minnow v. Keys, 333 F.3d 1109, (10th Cir. 2003), vacated because district court order had lapsed, 355 F.3d 1214 (10th Cir. 2004) (finding that the Bureau of Reclamation had sufficient discretion in its repayment contracts to warrant Section 7 consultation); O Neill v. U.S., 50 F.3d 677, , 686 (9th Cir. 1995) (holding that w California s Central Valley Project water contracts contemplate compliance with the ESA). 59 Klamath Water Users Prot. Ass n v. Patterson, 204 F.3d 1206, 1209, 1213 (9th Cir. 1999); O Neill v. U.S., 50 F.3d 677, 680, 681, 686 (9th Cir. 1995). 60 E.g., WaterWatch of Or. v. U.S. Army Corps of Eng rs, 2000 WL , at *7-*8 (D. Or. 2000). 61 Rio Grande Silvery Minnow v. Keys, 469 F. Supp. 2d 973, (D.N.M. 2002), vacated in light of a superseding Biological Opinion, 601 F.3d 1096 (10th Cir. 2010). 62 Id. at Id. at Id. at NRDC v. Salazar, 686 F.3d 1092, 1095 (9th Cir. 2012). 66 Id. 67 Id. 8

9 salmon. No one questions that the system s general operations are subject to Section 7 consultation, and there have been numerous Biological Opinions and repeated litigation regarding the various federal agencies compliance with the ESA. 68 However, Section 7 s applicability to the Project s contracts has been highly contested. 69 Since the 1930s, the Bureau of Reclamation has entered into a number of water contracts for delivery of Project water. The most recent ESA Section 7 consultation litigation involves renewals of 145 Project contracts that the Bureau entered in 1964 to settle potential water rights conflicts with senior water rights holders. As the Ninth Circuit described these contracts in its 2012 decision in Natural Resources Defense Council v. Salazar ( NRDC v. Salazar ), The contracts did not resolve the seniority claims, but guaranteed Settlement Contractors a certain amount of base water annually without any fee and other project water for which they would pay a fee to receive. The base water could only be reduced by 25% in very dry years. 70 The Ninth Circuit also affirmed the Eastern District of California in concluding that the Bureau lacked sufficient discretion in renewing these contracts to trigger Section 7 consultation under the ESA: Under 8 of the Reclamation Act of 1902, the Bureau must operate the CVP in conformity with California water law U.S.C Section 8 includes the full recognition of any vested right acquired under California water law. 43 U.S.C Under California law, senior appropriative water rights must be satisfied before junior water rights. The Central Valley Project Improvement Act ( CVPIA ), Pub.L , 106 Stat (1992), requires the Bureau to operate the CVP in compliance with all decisions of the California Water Resources Control Board. CVPIA 3406(a).... Under the Settlement Contracts, negotiated at the behest of the California Water Resources Control Board, the Bureau is required to deliver base supply water for free and that the supply may only be reduced by 25% in critically dry years. The duty to deliver the base supply water is mandatory.... Under the CVPIA, the Bureau is required to renew these contracts upon request. See CVPIA 3404(c). 71 As a result, the Bureau s discretion is limited with regard to the Settlement Contracts so that 7(a)(2) of the ESA is not triggered. The Bureau s hands are tied historically by those asserting senior water rights in the CVP. 72 Conclusion As the above discussion makes clear, most of the case law interpreting the discretionary function requirement for ESA Section 7 consultations, both before and after NAHB, comes out of the Ninth Circuit. In its 2012 en banc decision in Kanuk Tribe, the Ninth Circuit articulated a two-step analysis for deciding whether Section 7 consultation is required for any particular 68 E.g., In re Consolidated Salmonid Cases, 791 F. Supp. 2d 801 (E.D. Cal. 2011); San Luis & Delta-Mendota Water Auth. v. Salazar, 760 F. Supp. 2d 865, (E.D. Cal. 2010); Pacific Coast Fed. of Fishermen s Ass ns v. Gutierrez, 660 F. Supp. 2d 1195 (E.D. Cal. 2008); Pacific Coast Fed. of Fishermen s Ass s v. Gutierrez, 2008 WL (E.D. Cal. 2008). 69 NRDC v. Kempthorne, 621 F. Supp. 2d 954, (E.D. Cal. 2009); NRDC v. Kempthorne, 2008 WL , at *10 (E.D. Cal. 2008); Pacific Coast Fed. of Fishermen s Ass ns, 660 F. Supp. 2d at 1201; Pacific Coast Fed. of Fishermen s Ass ns, 2008 WL , at *3-*4. 70 NRDC v. Salazar, 686 F.3d at Id. at Id. See also Pacific Coast Fed. of Fishermen s Ass ns, 660 F. Supp. 2d at 1201; Pacific Coast Fed.n of Fishermen s Ass ns, 2008 WL , at *3-*4 (concluding the same regarding the Bureau s lack of discretion under the Settlement Contracts). 9

10 federal agency activity: First, whether there is federal agency action within the meaning of Section 7 that is, an activity authorized, funded, or carried out by the agency, construed broadly; and second, if so, whether the federal agency has sufficient discretion in carrying out that action, viewing the action as a whole, to make Section 7 consultation meaningful. 73 On March 18, 2013, the U.S. Supreme Court denied certiorari to review this decision, 74 suggesting that the Kanuk Tribe analysis has or will become the governing test for assessing Section 7 s applicability to particular federal agency activities, including their water management activities. Kanuk Tribe also demonstrated in en banc review that the Ninth Circuit will carefully examine a federal agency s authority to alter the activities that it fund, permits, or conducts in favor of ESA-listed species when determining whether Section 7 consultation is required. Such authority may exist even when the federal agency has no authority to stop or prevent the activity in question, so long as it can influence exactly how the activity is conducted. Nevertheless, the Ninth Circuit s two other 2012 decisions, Glen Canyon Trust and NRDC v. Salazar, both applied 50 C.F.R to find that the Bureau of Reclamation lacked sufficient discretion to engage in Section 7 consultation. Glen Canyon Trust appears to confirm earlier decisions that, in general, the Bureau of Reclamation lacks its normal range of statutory discretion when it is dealing with the Colorado River. NRDC v. Salazar, in contrast, involved a detailed examination of how the Reclamation Act and California water law influence the adjustability of certain of the Bureau s water project contracts. Specifically, the origin and context of those contracts and their relationship to senior water rights holders can be as important as the actual terms and language of the contracts in determining whether Section 7 consultation is necessary as part of their renewal. On March 5, 2013, the Ninth Circuit granted a petition to rehear NRDC v. Salazar en banc. 75 Its decision on rehearing might, as in Kanuk Tribe, result in a much closer examination of the Bureau of Reclamation s authority and discretion with respect to the Central Valley Project Settlement Contracts that changes the outcome of the case. Alternatively, as in Glen Canyon Trust, the Ninth Circuit could determine that the Bureau truly does lack discretion to modify the Settlement Contracts on renewal. Either way, the Ninth Circuit s trio of 2012 decisions promises to provide the guiding law regarding the discretionary function requirement in ESA Section 7 consultations for federal water projects and water-related activities for many years to come. 73 Kanuk Tribe of California, 681 F.3d at 1021; Center for Biol. Diversity v. EPA, 2013 WL , at *8-*9 (N.D. Cal. 2013). 74 New 49 ers, Inc. v. Karuk Tribe of Cal., --- U.S. ---, 133 S. Ct (2013). 75 NRDC v. Salazar, 710 F.3d 874 (9th Cir. 2013). 10