Judge Wanger Finds that Renewal of the Sacramento River Settlement Contracts Does Not Trigger Consultation Under the Endangered Species Act

On April 27, 2009, Judge Oliver W. Wanger of the United States District Court, Eastern District of California issued another significant decision in Natural Resources Defense Council v. Kempthorne, Case No. 1:05-CV-01207 OWW TAG (“NRDC v. Kempthorne”). The decision rejected the request of plaintiff environmental groups to set aside the 2005 renewals of the Sacramento River Settlement Contracts because the Bureau of Reclamation lacked discretion to modify, during the renewal process, water quantities or other terms of the Settlement Contracts. Thus, Reclamation's renewal of the Settlement Contracts did not trigger the consultation requirements in section 7(a)(2) of the Endangered Species Act.

NRDC v. Kempthorne is the companion case to Pacific Coast Federation of Fishermen's Associations v. Gutierrez, Case. No. 1:06-cv-00245-OWW-GSA (“PCFFA v. Gutierrez”), in which Judge Wanger invalidated a biological opinion that analyzed the effect of future CVP and SWP operations on salmon and steelhead.

Background

In NRDC v. Kempthorne, various environmental groups brought suit against the United States Department of Interior, Bureau of Reclamation and Fish and Wildlife Service (“Federal Defendants”) and California Department of Water Resources (“DWR”), alleging that operation of the Federal Central Valley Project (“CVP”) and State Water Project (“SWP”) did not comply with the Endangered Species Act (“ESA”). Specifically, the plaintiffs argued that the Federal Defendants had not adequately analyzed the joint operating plan for the CVP and SWP in a 2005 biological opinion (“BiOp”). The plaintiffs argued that the BiOp's “no jeopardy” conclusion – that is, the determination that operation of the CVP and SWP would neither jeopardize the continued existence of Delta smelt nor cause destruction or adverse modification of the smelt's critical habitat – was arbitrary and capricious. Judge Wanger agreed with the plaintiffs' contentions and, on May 25, 2007, issued an order finding the BiOp to be legally defective. Judge Wanger later remanded the BiOp to the Fish and Wildlife Service for revision consistent with his May 25 order and imposed interim remedies during the remand period.

On April 8, 2008, the plaintiffs in NRDC v. Kempthorne amended their complaint to allege that the Bureau relied on the defective BiOp to justify renewing long-term water supply contracts. The plaintiffs asked the court to “[e]njoin the defendants and defendant-intervenors from continuing to perform the unlawfully executed long-term water supply contracts . . . and order them to renegotiate and re-execute these renewal contracts only upon completion of a valid ESA § 7(a)(2) consultation.” (Plaintiffs' Third Supplemental Complaint at 30:3-5). One of the classes of contracts that plaintiffs challenged were the 2005 renewal of contracts between the Bureau of Reclamation and senior water right holders on the Sacramento River, which represent Reclamation's recognition of preexisting Sacramento River water rights and the agreement between the parties regarding how the Bureau would operate the CVP with respect to those rights (“Settlement Contracts”).

The Settlement Contractors argued that section 7(a)(2) of the ESA did not apply to the renewal of the Settlement Contracts. Under the Supreme Court's decision in National Association of Home Builders v. Defenders of Wildlife, 127 S.Ct. 2518 (2007) (“Home Builders”), where a federal agency lacks discretion to implement measures to protect endangered or threatened species, a federal action does not trigger the consultation requirements in section 7(a)(2) of the Endangered Species Act (ESA). The Settlement Contractors asserted that the Bureau of Reclamation's rights to operate the CVP were junior to the Settlement Contractors' water rights, and that the terms of the Settlement Contracts and the state-imposed conditions on the Bureau of Reclamation's rights restricted Reclamation from taking unilateral action to reduce the Settlement Contractors' water diversions to benefit Delta smelt.

On November 19, 2008, Judge Wanger issued a written decision directing Bureau of Reclamation and the Settlement Contractors to provide evidence on the full nature and extent of the claimed senior water rights to resolve whether Reclamation lacked discretion over the renewal process under Home Builders. The parties submitted briefs on the matter, the Settlement Contractors submitted thousands of pages of documents demonstrating their water rights, and Judge Wanger heard oral argument on March 13, 2009.

The Decision

Judge Wanger's April 27, 2009 decision answered the question of whether Reclamation had discretion during the Settlement Contract renewal process with a resounding “no.” Although the decision noted that the actual amount of water covered by the Settlement Contractors' underlying water rights has never been quantified and is subject to dispute, the terms of the Settlement Contracts substantially constrained Reclamation's ability to reduce water diversions for the benefit of Delta smelt or for any other reason.

The parties originally executed the Settlement Contracts in or around 1964 (before enactment of the ESA) for a period of 40 years and included a specific term explaining that the Settlement Contractors would have a right to divert certain quantities of water during the life of the contract or any renewals thereof. Article 9(a) of the Settlement Contracts states:

(Emphasis added.) Thus, when the parties renewed the Settlement Contracts for another 40 years in 2005, the plain language of Article 9(a) provided the exact definition of the Settlement Contractors' water rights that had to be preserved upon renewal. Reclamation had no discretion to benefit Delta smelt by altering the Settlement Contractors' rights to divert water.

Absent the necessary discretion to implement protective measures during the renewal process, Reclamation's action in renewing the Settlement Contracts did not trigger section 7(a)(2) of the ESA. As a consequence, Reclamation's failure to perform an adequate consultation and to issue a supportable biological opinion in 2005 had no effect on the validity of the renewed Settlement Contracts.

For more information, please contact the Downey Brand lawyers whose practices involve the ongoing environmental challenges to CVP and SWP operations: Steven Saxton, Kevin O'Brien, or Maya Ferry at (916) 444-1000.

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