P R O B A T E   &   P R O P E R T Y
July/August 2005
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Environmental Law Update

Environmental Law Update Editor: Rafe Petersen, Holland & Knight LLP, 2099 Pennsylvania Ave., N.W., Suite 100, Washington, DC 20006-6801, rafe.petersen@hklaw.com.

Environmental Law Update provides information on developments in environmental law as it applies to property, probate, and trust matters. The editors of Probate & Property welcome information and suggestions from readers.

U.S. Fish and Wildlife Service to Rework Important Provision of Endangered Species Act

In a memorandum dated December 9, 2004, the U.S. Fish and Wildlife Service (the Service) issued a guidance memorandum to its regional directors directing agency staff to apply a new framework for how the Service analyzes the effects on endangered species of actions authorized by other federal agencies. The guidance was issued in response to several different courts that had ruled that the Service’s standard was contrary to law for determining whether proposed federal agency actions are likely to result in the “adverse modification” of designated critical habitat under Section 7 of the Endangered Species Act. In setting aside numerous “Biological Opinions” issued by the Service concerning various federal approvals, these courts held that the Service’s regulation would result in its failing to give adequate protection to areas designated as critical to the survival of the species. How the Service determines what actions result in “adverse modification” has major implications for how it analyzes the potential effects of projects authorized or funded by the federal government that are subject to Section 7 consultation and how it analyzes the effect of designating land as “critical habitat” for endangered species. The guidance is designed to serve as an interim measure while the Service proceeds with a proposed rulemaking in 2005 that addresses the various court rulings.

The Importance of the “Adverse Modification” Rule

The “adverse modification” definition has significance for both Section 4 and Section 7 of the Endangered Species Act (ESA). ESA § 4 directs the Service to determine by formal rule whether any species is “endangered” or “threatened.” 16 U.S.C. § 1533(a)(1). When the Service lists a species as endangered or threatened, it must concurrently “designate any habitat of such species which is then considered to be critical habitat.” Id. § 1533(a)(3)(A). Basically, “critical habitat” is occupied habitat that has certain physical characteristics requiring “special management considerations or protection” and unoccupied habitat that is “essential for the conservation of the species.” Id. § 1532(5)(A). The Service must designate critical habitat “on the basis of the best scientific data available” and must consider the “economic impact, . . . and any other relevant impact, of specifying any particular area as critical habitat.” Id. § 1533(b)(2). Areas can be excluded if the Service determines that the economic impact outweighs the benefits of designation. With 1,264 species listed as endangered or threatened (518 animals, 746 plants) and thousands more awaiting consideration, the Service has designated critical habitat for 472 species. Despite such a low percentage of designations (and with more on the way because of litigation), millions of acres of public and private property have been designated (which has fluctuated over the years because of litigation and adjustments by the Service).

Section 7 requires all federal agencies to consult with the Service to ensure that any action authorized, funded, or carried out by such agency is not likely to jeopardize “the continued existence of” an endangered or threatened species and not result in the “destruction or adverse modification” of the designated critical habitat of the listed species. Id. § 1536(a)(2). These consultations are known as “Section 7” consultations. The action agency typically makes a written request to the Service, 50 C.F.R. § 402.14(c), and, after formal consultation, the process concludes with the consulting agency issuing a “Biological Opinion” on how the project “affects the species or its critical habitat.” 16 U.S.C. § 1536(b)(3)(A). If the Service determines that the project will jeopardize the continued existence of the species or destroy or “adversely modify” its critical habitat, then it must provide “reasonable and prudent” alternative actions the federal agency can take to avoid such impact. Id. § 1536(b)(3)(A); 50 C.F.R. § 402.14.

The Service defines “adverse modification” as “a direct or indirect alteration that appreciably diminishes the value of critical habitat for both the survival and recovery of a listed species.” 50 C.F.R. § 402.02. In challenges to different Biological Opinions, various courts held that this definition was improper. For example, in the Ninth Circuit, an environmental group asserted that this definition “sets the bar too high, because the adverse modification threshold is not triggered by a proposed action until there is an appreciable diminishment of the value of critical habitat for both survival and recovery.” Gifford Pinchot Task Force v. USFWS, 378 F.3d 1059, 1069 (9th Cir. 2004). The court agreed that the definition “offends the ESA” because it “reads the ‘recovery’ goal out of the adverse modification inquiry; a proposed action ‘adversely modifies’ critical habitat if, and only if, the value of the critical habitat for survival is appreciably diminished.” Id. (citing the Tenth and Fifth Circuits). The court concluded that “the ESA was enacted not merely to forestall the extinction of species (i.e., promote a species survival), but to allow a species to recover to the point where it may be delisted.” Thus, Biological Opinions that do not analyze the effect of the action on the recovery of the species were found to be fatally flawed.

In a similar vein, numerous courts have held that the improper definition of “adverse modification” also taints the process of designating critical habitat by causing the Service to underestimate the number of Section 7 consultations triggered by the designation and, thus, to undercount the economic impact of the designation. See Cape Hatteras Access Preservation Alliance v. U.S. Dep’t of the Interior, 344 F. Supp. 2d 108 (D.D.C. 2004).

Thus, the practical effect of the striking of the regulation is that critical habitat is given heightened importance because of its role in recovering the species, not just protecting against extinction. This matters both when habitat is designated as critical (or excluded because of economic impacts) under Section 4 and later on when the Service examines projects that affect the habitat under Section 7 (which is potentially triggered by any project with a federal nexus).

The Guidance

The guidance memorandum is a reaction to the Service’s spate of losses against challenges to both Biological Opinions and critical habitat designations alike. The guidance admits that the regulation is improper and instructs the Service staff in undertaking Section 7 consultations to focus on how the activity being analyzed will affect the “habitat qualities essential to the conservation of the species.” In addition, Biological Opinions must examine “how that will influence the function and conservation role of the affected critical habitat unit(s).” This could lead the Service to reopen consultation that relied on the improper definition.


The guidance (and the rule that will soon follow) represents a significant change in how the Service will examine the effect of federal actions on critical habitat. Taking into account the value of property for recovery of a species is a higher standard that is likely to lead to more restrictions on the scope of projects. Given the amount of land that is designated as critical habitat and the number of species for which critical habitat has yet to be designated, this has the potential to affect a vast number of real estate projects. Interestingly, the guidance does not explicitly address how the Service will consider this change in designating land in the first place. In a completely circular fashion, it could actually lead the Service to exclude areas proposed for designation because of the argument that the higher recovery standard would make the designation have a greater economic impact. Whatever the form of the final rule, it is clear that this represents a significant change in how the ESA is interpreted and its effect on private and public projects.