November 01, 2016

What a Long Strange Trip It’s Been: The Saga of EPA’s Water Transfers Rule

Patrick Parenteau and Laura Murphy

On December 1, 2015, the U.S. Court of Appeals for the Second Circuit heard arguments in Catskill Mountains Chapter of Trout Unlimited, Inc. v. U.S. Environmental Protection Agency (No 8:08-cv-05606), an appeal from the Southern District of New York’s ruling that overturned and remanded the Water Transfers Rule (WTR) to the Environmental Protection Agency (EPA). The WTR exempts inter-basin transfers from National Pollutant Discharge Elimination System (NPDES) permit requirements, even if the source water contains pollutants, provided the water has not been subjected to intervening industrial, municipal, or commercial uses. 40 C.F.R. § 122.3(i). The Second Circuit has twice held that the Clean Water Act (CWA or Act) contains no exception for discharges resulting from transfers of contaminated water from one body of water to another. Nevertheless, the Second Circuit panel did not seem to approach this case as a slam dunk.

This story actually began in 1972, when Congress decreed that “the discharge of any pollutant by any person shall be unlawful” except in compliance with a permit or other provision of the CWA. Clean Water Act § 301(a), 33 U.S.C. § 1311(a). Congress broadly defined “discharge of a pollutant” to mean “any addition of any pollutant to navigable waters from any point source.” Id. § 1362(12). The NPDES permitting program is the primary means of achieving the Act’s ambitious goal of restoring and maintaining “the chemical, physical, and biological integrity of the Nation’s waters.” Id. § 1251(a).

Fast forward 36 years to 2008, when EPA issued a rule concluding that water transfers “do not require NPDES permits because they do not result in the ‘addition’ of a pollutant.” NPDES Water Transfers Rule, 73 Fed. Reg. 33,697, 33,699 (June 13, 2008). The rule has a checkered past growing out of years of litigation over the meaning of “addition.” One of the earliest cases revolved around the question of whether large hydroelectric dams require NPDES permits when they release water containing sediment, dissolved minerals and nutrients, low dissolved oxygen, and other pollutants. Nat’l Wildlife Fed’n v. Gorsuch, 693 F.2d 156, 163–64 (D.C. Cir. 1982). There was no dispute that dams were causing serious water quality problems. The fight was over whether these dam releases constituted the “addition of a pollutant” within the meaning of 33 U.S.C. § 1362(12). Id. at 164–66. National Wildlife Federation argued that they did; EPA argued that they did not.

The Gorsuch court acknowledged that the addition of a pollutant from a “point source” could be read to cover dam releases, and that there were legitimate reasons for doing so, but ultimately opted to give “great deference” to EPA’s view that, in order for there to be an addition, the point source must “introduce the pollutant into navigable water from the outside world.” Id. at 165, 170, 175 (emphasis in original). Gorsuch predates Chevron, Mead, and Christensen, the trilogy of U.S. Supreme Court cases on the deference doctrine. Under the now familiar “two-step” test of Chevron, a court first must determine whether the statute itself resolves the question: “If the intent of Congress is clear, that is the end of the matter; for the court, as well as the agency, must give effect to the unambiguously expressed intent of Congress.” Chevron, U.S.A., Inc. v. NRDC, 467 U.S. 837, 842–43 (1984). Only where the statute is silent or ambiguous with respect to the specific issue presented should the court proceed to Step II to determine “whether the agency’s answer is based on a permissible construction of the statute.” Id.

Under the later cases of Mead and Christensen, an agency only receives Chevron deference if the interpretation at issue is made pursuant to the agency’s authority to make rules carrying the force of law and was subject to notice-and-comment rulemaking. See United States v. Mead Corp., 533 U.S. 218, 226–27 (2001); Christensen v. Harris County, 529 U.S. 576, 587 (2000). Otherwise, the agency interpretation is entitled to deference only to the extent it is persuasive. Christensen, 529 U.S. at 587. However, in the 1982 Gorsuch case, these rules had not been established, and the Court gave significant deference to EPA, even though EPA’s position had never been formally adopted by rule or public process. See 693 F.2d at 166–70. Thus, the Court concluded that EPA had discretion to treat dam releases as, essentially, nonpoint source pollution not requiring NPDES permits. See id. at 169, 174.

The “outside world” test adopted in Gorsuch was picked up in other cases. In 1988, the Sixth Circuit ruled that withdrawing water from Lake Michigan for power generation, and then discharging it back into the lake with pureed fish, was not an “addition” because the fish were already in the lake; hence, not “from the outside world.” Nat’l Wildlife Fed’n v. Consumers Power Co., 862 F.2d 580, 586 (6th Cir. 1988).

Consumers Power and other cases began to draw a distinction between intra-basin and inter-basin transfers. In a 1996 inter-basin case involving a ski area in New Hampshire, the First Circuit ruled that an NPDES permit was required for the transfer of snowmaking water from the East Branch Brook into pristine Loon Pond, where the source water contained phosphorous and bacteria. Dubois v. USDA, 102 F.3d 1273, 1296–99 (1st Cir. 1996). The district court had held that no permit was required because the East Branch and Loon Pond were all part of a “single entity, the ‘waters of the United States,’” and therefore there was no “addition.” Id. at 1296. The First Circuit reversed, holding that there was “no basis in law or fact” for this theory and analogized the discharge to one “where water is added ‘from an external source.’” Id. at 1296–97. The court reasoned that the East Branch and Loon Pond were distinct water bodies such that the water transfer would not occur naturally. Id. at 1297, 1299.

Previously, in a case originating in Vermont, the Second Circuit had ruled that polluted water flowing through a culvert from a pond into a wetland was subject to the permit requirement of the CWA. Dague v. City of Burlington, 935 F.2d 1343, 1354–55 (2d Cir. 1992). The issue in that case was whether the culvert was a “point source.” Id. at 1354. The city argued that the culvert did not “add” pollutants to navigable waters because the pollutants were already in the pond, which was part of a larger wetland complex known as the Intervale. The court rejected that argument, reasoning that “since the city’s landfill caused pollutants to enter Beaver Pond, and since these pollutants were then conveyed into the rest of the Intervale by the railroad culvert,” the discharge from the culvert required a permit. Id. at 1355.

The First Two Catskill Cases

In 2001, the Second Circuit addressed the addition issue head-on in Catskill Mountains Chapter of Trout Unlimited v. City of New York, 273 F.3d 481 (2d Cir. 2001) (Catskill I). As part of its public drinking water supply, New York City had been transferring sediment-laden water from a reservoir in the Catskills through the Shandaken Tunnel into the otherwise cool, clear Esopus Creek, a blue-ribbon trout fishery. The city argued that the transfer did not require a permit because there was no “addition,” relying on EPA’s position in the Gorsuch and Consumers Power cases. The court reviewed the Gorsuch, Consumers Power, Dubois, and Dague cases and relied on the plain meaning of “addition” to hold the city liable for violating the Act’s prohibition on a discharge without a permit. Id. at 491–94.

The Catskill I court drew a sharp distinction between the dam cases, which involved discharges within the same water body, and the discharge of polluted water from one water body to another. In a now-famous analogy, the court distinguished between intra-basin (Gorsuch and Consumers Power) and inter-basin (Catskill) transfers: “If one takes a ladle of soup from a pot, lifts it above the pot, and pours it back into the pot, one has not ‘added’ soup or anything else to the pot (beyond, perhaps, a de minimis quantity of airborne dust that fell into the ladle).” Id. at 492. The court declined to adopt the “single entity” theory of navigable waters. The court stated: “Such a theory would mean that movement of water from one discrete water body to another would not be an addition even if it involved a transfer of water from a water body contaminated with myriad pollutants to a pristine water body containing few or no pollutants.” Id. at 493.

Then, in 2006, the court dropped the other shoe. In Catskill Mountains Chapter of Trout Unlimited. v. City of New York, 451 F.3d 77 (2d Cir. 2006) (Catskill II), on appeal from the trial court’s assessment of penalties, the city urged the court to revisit its 2001 jurisdictional holding based on the 2004 Supreme Court decision in South Florida Water Management District v. Miccosukee Tribe of Indians, and a new EPA guidance document. See 451 F.3d at 82.

In Miccosukee, the issue was whether a water management district’s pumping of phosphorus-laden water from a canal into a wetland system in the Everglades caused an “addition” of pollutants to the wetlands. S. Fla. Water Mgmt. Dist. v. Miccosukee Tribe of Indians, 541 U.S. 95 (2004). The Supreme Court did not decide the issue, but remanded for a determination of whether the wetlands and the canal were “meaningfully distinct” water bodies. Id. at 112. The United States had argued, as amicus, that because both the canal and the wetlands were “waters of the United States,” they were “unitary waters” and pollutants were not “added” to “waters of the United States” during the transfer. Id. at 105-06. The Court did not rule on the unitary waters question, leaving it open for remand, but did detail several reasons the theory might be inappropriate under the CWA. Id. at 106–09.

After Miccosukee, EPA’s general counsel and assistant administrator for water issued a memorandum to field offices providing the agency’s view that transfers of polluted water from one water body to another did not require NPDES permits, as long as the water was not subject to “intervening” use. Memorandum from Ann R. Klee and Benjamin H. Grumbles to Regional Administrators re: Agency Interpretation on Applicability of Section 402 of the Clean Water Act to Water Transfers 1, 3, 13 (Aug. 5, 2005).

Undeterred, the Second Circuit again held that the city’s transfer of polluted water required a permit. Catskill II, 451 F.3d at 82–87. The circuit court reasoned that Miccosukee approved of its distinction between inter– and intra-basin transfers, and had quoted with favor the soup-ladle analogy. The court also noted that there would have been no reason for a remand to determine whether the water bodies were “meaningfully distinct” if a permit would not be required in any case. Id. at 83. The court found EPA’s new memorandum unpersuasive, and after conducting an extensive statutory analysis concluded, once again, that inter-basin transfers constitute “additions” subject to the Act’s permit requirement. See id. at 82–87. The city’s arguments were “simply embellishments of those made in” Catskill I. Id. at 86.

The Challenge to the Water Transfers Rule

In 2008, EPA codified its “addition” theory in the Water Transfers Rule, which provides that an NPDES permit is not required for a transfer between two water bodies, as long as the water is not subject to certain intervening uses. 40 C.F.R. § 122.3(i). Parties filed rule challenges in multiple courts. Cases filed in the circuit courts were consolidated in the Eleventh Circuit, and cases in the district courts were stayed.

In 2009, the Eleventh Circuit issued its opinion in a related case—not the rule challenge—and held that pumping polluted water into Lake Okeechobee from contaminated runoff collection canals did not require a permit. Friends of the Everglades v. S. Fla. Water Mgmt. Dist., 570 F.3d 1210 (2009). The court applied Chevron deference to the WTR, and concluded that § 301(a) was ambiguous and EPA’s rule was a permissible interpretation. Specifically, the court found that the reference to “navigable waters” could mean either to “all navigable waters as a singular whole” (the unitary waters theory) or to “each individual water body.” Id. at 1223, 1228. While acknowledging that the unitary waters theory had been rejected by every one of the lower courts to address it, and that the Miccosukee Court had shown serious skepticism about it, the Eleventh Circuit nevertheless came up with a new metaphor to rationalize EPA’s interpretation. The court reasoned that if there are two buckets of marbles and a person takes some from one bucket and puts them into the other bucket, a reasonable interpretation would be that no marbles had been added to buckets. See id. at 1218, 1228. In November of 2010, the United States Supreme Court denied a writ of certiorari on this case.

The Eleventh Circuit’s marbles metaphor is flawed because, among other things, it focuses on the wrong question. As the Second Circuit said in Catskill II, “It is the meaning of the word ‘addition’ upon which the outcome of Catskill I turned and which has not changed.” 451 F.3d at 84. In terms of a Chevron Step I analysis, the issue is whether, by using the term “any addition,” Congress has spoken directly and unambiguously to the precise question at issue. The Eleventh Circuit was mistaken in directing its analysis to the question of whether “navigable waters” meant “any navigable waters” or “navigable waters” as a whole. This fails to give effect to the clearly expressed congressional intent to regulate “any addition” of “any pollutant” from “any point source.” Instead, it rewrites the statute to say “except for additions that involve transfers of water containing pollutants already present in the source water.” In short, the Eleventh Circuit found ambiguity where none exists.

About three years later, the Eleventh Circuit dismissed the consolidated rule challenges on a jurisdictional issue, and the case went forward in New York. Meanwhile, in early 2013, the Supreme Court issued another related opinion. Los Angeles County Flood Control District v. NRDC held that when water flows from one portion of a river through an engineered channel into another portion of the same river, there is no “addition.” 133 S. Ct. 710, 712–13 (2013). Conversely, a water transfer could be an addition if the water bodies were “meaningfully distinct.” Id. at 713.

Then, in a lengthy analysis in 2014, Judge Kenneth M. Karas of the U.S. District Court for the Southern District of New York struck down the WTR under Chevron Step II. Catskill Mountains Chapter of Trout Unlimited v. EPA, 8 F. Supp. 3d 500 (S.D.N.Y. 2014). In sum, the court found that EPA’s interpretation was not supported by a reasoned explanation in light of the text and structure of the CWA, including congressional intent, and was internally inconsistent. See, e.g., id. at 546, 549–50.

EPA, a robust group of more than 30 western states and water districts, the city of New York, and the South Florida Water Management District appealed. There are also multiple parties on the plaintiffs’/appellees’ side, including the Catskill Mountains Chapter of Trout Unlimited and other fishing and environmental groups, nine different states including New York, and the Miccosukee Tribe of Indians. At least five amicus briefs were filed, including one by the authors of this article (as noted in our bio statement). In that brief, we argued that EPA’s rule should be struck down under Chevron Step I because there is no ambiguity in the statute. Congressional intent, as evinced through traditional canons of statutory construction, demonstrates that Congress meant what it said when it said “addition.”

Highlights from Oral Argument and What Happens Next

It is always hazardous to predict outcomes based on questions asked at oral argument, so we will not attempt to do so here. But, we include a few highlights from the argument. The panel consisted of Judges Susan L. Carney, Denny Chin, and Robert D. Sack. Counsel for four different parties argued for appellants (a U.S. attorney for EPA; the city of New York; South Florida Water Management District; Colorado and western states). The solicitor general for the state of New York and attorneys for the original plaintiffs, Catskill Mountains Chapter of Trout Unlimited et al., argued for appellees.

Those who argued in defense of the WTR focused on Chevron Step II deference, and said that EPA’s rule was a reasonable attempt to balance competing goals in the statute (protecting water quality and recognizing states’ authority to manage water allocation). Judge Chin cut to the chase with his first question: To what extent is the court bound by its previous decisions suggesting that the statute is not ambiguous? Counsel for EPA replied that Catskill I and II left the door open, and that the issuance of the rule changes the analysis, but he was pressed harder on the point that the reasoning of Catskill I and II was based on the plain meaning of the statute.

Appellants also argued that it would make no sense to regulate inter-basin transfers but not intra-basin transfers, because both cause additions and add pollutants; the point is that Congress did not intend to regulate any transfers. The attorney for the city argued that NPDES permitting was overly burdensome for water transfers—a common theme. However, she admitted that, in the New York situation, water was being transferred from one “distinct” body (the Schoharie Reservoir) to another (Esopus Creek). When asked a hypothetical question on whether a transfer of toxic water from the Schoharie Reservoir to Esopus Creek would add “pollutants” to the Esopus, and whether it made common sense not to include such a transfer under the Act, the city attorney replied that the transfer would not add pollutants to the Esopus because pollutants had already been added up in the Schoharie. Under this interpretation, there can be only one “addition”—where the pollutants initially enter “navigable waters.”

Supporters of the WTR also argued that the NPDES program is but one of many tools available to address water quality problems, including state regulation and interstate compacts, as well as the nonregulatory planning and nonpoint source funding programs under the CWA. Judge Carney expressed the most interest in these approaches and pressed counsel for the appellees on why the court should not defer to the agency’s judgement on how to balance the competing congressional policies of protecting water quality while respecting state authority over water allocation. However, she challenged the argument that requiring NPDES permits would necessarily be unduly burdensome, and pointed out that EPA has authority to tailor regulations through use of general permits setting standards to protect downstream states that would not necessarily curtail water uses in upstream states. Justice O’Connor made a similar point in PUD No. 1 of Jefferson County v. Washington Department of Ecology, 511 U.S. 700, 721 (1994): “Sections 101(g) and 510(2) preserve the authority of each State to allocate water quantity as between users; they do not limit the scope of water pollution controls that may be imposed on users who have obtained, pursuant to state law, a water allocation.”

The solicitor general of New York (SG) focused on the language, structure, and purpose of the CWA, and made the point that the Act is designed to protect individual water bodies through water quality standards and the permitting system, not waters as a whole. She explained that the statute is not ambiguous and that, as a matter of doctrine, EPA’s rule should not affect the court’s determination of whether the statute is ambiguous in the first instance. Judge Chin joked that there seemed to be some ambiguity as to whether the court found ambiguity in the Catskill I and II cases.

The SG also argued that other potential tools, such as state compacts and nonpoint provisions of the Act, represent approaches that have proven inadequate in the past and were the primary reason that Congress enacted the more comprehensive 1972 Act that created the NPDES permit program as the centerpiece of a more robust federal regulatory program for the “restoration and maintenance of chemical, physical and biological integrity of [the] Nation’s waters.” 33 U.S.C. § 1251(a). She gave the example of Devil’s Lake in North Dakota, where a landlocked polluted lake discharges into a river that carries pollution to Minnesota and Manitoba, and of the pollution being transferred from Everglades canals into Lake Okeechobee. She pointed out a number of examples where EPA found ways to regulate discharges that it first attempted to exclude from the Act’s coverage based on concerns about feasibility (such as ballast water discharges, pesticide spraying, and municipal separate storm sewer systems (MS4s)).

Closing things out for the appellees’ side was counsel for the Catskill Mountains Chapter of Trout Unlimited, who made the point that EPA did not rely on the unitary waters theory as the basis for the WTR, most likely because Miccosukee cast doubt on the theory. Instead, EPA adopted a “holistic” interpretation of the Act arguing that “the heart of this matter is the balance Congress created between federal and State oversight of activities affecting the nation’s waters.” See NPDES Water Transfers Rule, 73 Fed. Reg. 33,697, 33,701 (June 13, 2008). This explanation begs the question: If the unitary waters theory is not the basis for the rule, what exactly is the rationale that deserves Chevron deference? Appellee counsel also pointed out that nine years after the second Catskill case, New York City’s operation of the Shandaken Tunnel had not changed in any material way. Rather, the tunnel is covered by a permit and, although there are still some unresolved issues regarding the terms of the permit, no one has ever requested that the tunnel be shut down. The New York City water supply has not been impaired.

When questioned by Judge Carney about whether the court should defer to the agency’s balancing of goals in the statute, even if the agency may not have done a good job of explaining itself, counsel for Catskill Mountains pointed out that EPA could not have it both ways. In defending the Clean Water Rule from attacks based on arguments that it interferes with state water allocation authority, EPA points to the same provisions of the Act and steadfastly maintains that the Clean Water Rule protects water quality of allocated water. See Clean Water Rule: Definition of Waters of the United States, 80 Fed. Reg. 37,054 (June 29, 2015).

Strictly speaking, the panel is not bound by the previous rulings of the Second Circuit, but the reasoning of those decisions remains very persuasive, and nothing that EPA has said in the WTR explains why the agency failed to adopt the Supreme Court’s “meaningfully distinct” test as opposed to the vague “holistic” interpretation.

Regardless of the outcome, an appeal is virtually guaranteed. The first step might be a motion for rehearing en banc before the entire Second Circuit, given the national importance of the issue and the prior history in the Court. Although such petitions are rarely granted, the chances increase with a split decision. With or without an en banc rehearing, a petition for certiorari is almost assured.

That raises the interesting question of whether the vacancy on the Supreme Court will be filled by the time the petition arrives, and if so, by whom? Obviously, a lot is riding on the outcome of the upcoming elections and there is no point speculating on the outcome. Suffice it to say, there is a greater chance of a 4–4 split if the vacancy has not been filled by the time the case is heard. Even assuming a Court at full strength, it is hard to predict how a majority of justices might rule on the statutory interpretation question at the heart of this case. EPA is banking on this being a Chevron Step II case, but the Roberts Court has not always applied Chevron in a consistent manner. See Jack M. Beermann, Chevron at the Roberts Court: Still Failing After All These Years, 83 Fordham L. Rev. 731 (2015). In King v. Burwell, 135 S. Ct. 2480 (2015), Chief Justice Roberts declined to apply Chevron in construing ambiguous provisions of the Affordable Care Act, reasoning that “where a question of deep ‘economic and political significance’ that is central to this statutory scheme is presented” the Court will not presume that Congress delegated the authority to the agency to “fill in statutory gaps.” Id. at 2488–89.

Ultimately, the Court in King v. Burwell chose an interpretation of the contested language in the Affordable Care Act “because it was ‘the only one of the permissible meanings [that] produces a substantive effect that is compatible with the rest of the law.’” Justice Roberts concluded: “Congress passed the Affordable Care Act to improve health insurance markets, not to destroy them. If at all possible, we must interpret the Act in a way that is consistent with the former, and avoids the latter.” Id. at 2496. By the same token, Congress passed the CWA to improve water quality, not to degrade it. To be consistent with the former and avoid the latter (not to mention the plain meaning of the statute), the court should reject EPA’s “holistic” interpretation that exempts the discharge of polluted water from one water body to another. It should invalidate the WTR once and for all.

Patrick Parenteau and Laura Murphy

Mr. Parenteau is a professor of law and senior counsel at the Environmental and Natural Resources Law Clinic at Vermont Law School. He may be reached at Ms. Murphy is an assistant professor of law and associate director at the same law clinic. She may be reached at The authors filed an amicus curiae brief in support of plaintiffs-appellees on behalf of environmental and water law scholars and practitioners, including Leon Billings and Tom Jorling, who were the principal authors of the 1972 Federal Water Pollution Control Act.