Summary of a Recent
Judicial Development in
Water Law

Unlawful Exercise of Discretion in Water Service Contract Negotiations

Walt McCarter
National AgLaw Center Research Associate

Summary of Decision

In Natural Resources Defense Council v. Kempthorne, No. 1:05-CV-01207 OWW TAG, 2008 WL 5054115 (E.D. Cal. Nov. 19, 2008), the United States District Court for the Eastern District of California held that the Bureau of Reclamation had unlawfully exercised its discretion in negotiating the amount of water to be committed to certain water servicing contracts because it relied upon a legally flawed biological opinion which failed to competently and completely evaluate the impacts of water deliveries under the contracts on Delta smelt.

Background

The plaintiffs brought suit against the government, claiming that the defendants had acted unlawfully by executing 41 long-term water servicing contracts without performing adequate reviews under the Endangered Species Act (ESA) and that, by executing and implementing the contracts in reliance on what it knew or should have known to be a faulty ESA review, the Bureau of Reclamation failed to comply with the ESA's substantive obligation to avoid causing jeopardy or adverse critical habitat modification. Id. at *1. The plaintiffs moved for partial summary judgment on their ESA claim against the Bureau and requested a permanent injunction against performance of the contracts. Id. at *2.

Arguments

The plaintiffs argued that to satisfy the terms of the disputed water service contracts, the Bureau was increasing pumping to export water to water service contractors outside of the Delta, which impaired Delta smelt survival, recovery, and critical habitat by increasing entrainment in export facilities, removing food organisms, diminishing freshwater outflows, and interfering with migration. Id.

The government defendants argued that the Bureau complied with the ESA during section 7 consultations for the challenged contracts. Id. at *3.

Defendant-intervenors, the contract holders, argued that the plaintiffs lacked standing to challenge their contracts, that the Administrative Procedures Act (APA) did not authorize judicial review of the Bureau's implementation of the contracts as there was no final agency action, and that the Supreme Court's recent decision in National Association of Home Builders v. Defenders of Wildlife, 127 S. Ct. 2518 (2007), barred the plaintiffs' claims. Id.

Analysis and Holdings

The court explained that pursuant to the APA, it would set aside an agency action only if the agency acted arbitrarily and capriciously or not in accordance with the law. Id. at *8. It further explained that if the agency acted unlawfully in executing a contract, the court had the discretion to either rescind the contract or preserve it if the legal flaw could be rectified in some another way. Id. The court found that the Bureau's actions were reviewable under the APA because although its contractual performance was ongoing, it specifically retained discretion to modify the project operations and other decision-making authority. Id. at *10. The court noted that to satisfy the standing requirements, a plaintiff must to show:

(1) it has suffered an 'injury in fact' that is (a) concrete and particularized and (b) actual or imminent, not conjectural or hypothetical; (2) the injury is fairly traceable to the challenged action of the defendant; and (3) it is likely, as opposed to merely speculative, that the injury will be redressed by a favorable decision.
Id. at *11.

Additionally, the plaintiffs had to establish that they fell within the "zone of interest" of the statute under which they brought their lawsuit. Id.

It was undisputed that the plaintiffs' interest in protecting the Delta smelt fell within the zone of interests contemplated by ESA § 7(a)(2). Id. Regarding the other standing requirements, the court found that the plaintiffs had only established standing to challenge certain contracts involved in the suit because the shortage provisions in the other contracts made it impossible for them to establish causation. Id. at *11-22. Turning to the plaintiffs' procedural claim, the court determined that the Bureau had followed the correct procedures in executing the remaining contracts because they were executed after the Bureau had requested formal consultation and received a "no jeopardy" biological opinion. Id. at *31. The court held, however, that the Bureau illegally relied upon a flawed biological assessment to evaluate the impacts of contract deliveries on the smelt, so the environmental reviews of the challenged contracts were invalId. Id. at *39.

The case was decided on November 19, 2008.