Environmental, Energy, and Water Blog

Mitchell Williams Law Firm

THE BUFFALO RIVER/HOG FARM FEDERAL DISTRICT COURT DECISION: TRANSACTIONAL LESSONS?

Posted December 10, 2014
Author: Walter G. Wright

United States District Judge D. P. Marshall, Jr. of the Eastern District – Arkansas, in a December 2nd decision (“Order”) determined loan guarantees by two federal agencies to a swine farm in the vicinity of the Buffalo National River were provided without fulfilling certain National Environmental Policy Act (“NEPA”) and Endangered Species Act (“ESA”) procedural requirements. Buffalo River Watershed Alliance, et al. v. Department of Agriculture, No. 4:13-CV-450 DPM (E.D. Ark.).
Judge Marshall’s Order has received national attention because it involves the iconic Buffalo National River.

The suitability of the C & H Hog Farms, Inc. (“C & H”) swine farm to operate in the area and the applicable state regulatory requirements had been the subject of significant discussion. However, the Arkansas permitting requirements applicable to the swine farm were not an issue in the federal lawsuit. Instead, the plaintiff environmental groups, Buffalo River Watershed Alliance, Arkansas Canoe Club, National Parks Conservation Association and Ozark Society, (whose representation included Little Rock lawyer Hank Bates) challenged the federal Farm Service Agency (“FSA”) and Small Business Administration (“SBA”) financial guarantees arguing that certain assessment and/or notice requirements required by NEPA and the ESA were not fulfilled.

The use of NEPA and to a lesser extent the ESA to challenge federal financing activities associated with the C & H facility provides a reminder of both the scope of these two federal statutes and the corresponding procedural mandates. Equally important, these procedural mandates are not limited to large public works or major private sector development projects. Even tangential federal involvement in what may be perceived as a mundane or routine activity can provide grounds for challenge if the procedural requirements of these federal statutes are not met.
The outcome of Judge Marshall’s decision arguably provides a further important lesson. Both the federal agency and the affected private sector participant must ensure that procedural (documentation/notice) requirements (particularly those mandated by NEPA) are not perceived as an afterthought.

Background

C & H began operation along Big Creek near the Buffalo National River pursuant to an Arkansas Department of Environmental Quality (“ADEQ”) permit. Nine of the farm’s waste-application fields are stated to be on Big Creek, which is one of the Buffalo National River’s tributaries. The facility is the first large concentrated animal-feeding operation in the Buffalo National River Watershed to receive a permit from the ADEQ. In order to receive a permit, the facility had to prepare a plan for land application of the generated waste on the various fields.

C & H applied for $3.6 million in loans from Farm Credit Services of Western Arkansas (“Farm Credit”). In order to obtain the loan, C & H was required to obtain loan guarantees from SBA and the FSA. The entrance of the two federal agencies into the transaction potentially invoked an obligation for them to undertake certain NEPA and ESA procedural requirements.

National Environmental Policy Act

NEPA established in 1970 a supplemental mandate for Federal agencies to consider the potential environmental consequences of their proposals, document the analysis, and make this information available to the public for comments prior to implementation. The environmental protection policy established in NEPA, Section 101, is supported by a set of “action forcing” provisions in Section 102 that form the basic framework for Federal decision-making and the NEPA process.

The NEPA process requires different levels of environmental review and analysis of Federal agency actions, depending on the nature of the action. There are three types of review under NEPA: categorical exclusions (“CX”), environmental assessments (“EA”), and environmental impact statements (“EIS”).

An EIS is a detailed analysis of actions presumed to have significant environmental impacts, and is followed by a Record of Decision. An EA is a concise public document that briefly provides sufficient evidence and analysis for determining whether to make a Finding of No Significant Impact (“FONSI”) or prepare an EIS. CX refers to a category of actions which do not individually or cumulatively have a significant effect on the human environment and do not require an EA or EIS.

NEPA requires federal agencies to prepare a detailed statement of environmental impact (i.e., an Environmental Impact Statement) for “major Federal actions” significantly affecting the quality of the human environment.” Therefore, whether an EIS is required requires an affirmative response to two questions:

Is there a federal action?
Individually or cumulatively significantly affecting the human environment?

The Plaintiffs argument that NEPA was violated was primarily based on their position that the SBA and FSA failed to comply with the required procedural steps to determine whether an EIS should be prepared.
As to question (1), it is important to recognize that NEPA can potentially encompass both federally financed and privately financed projects. Federal “action” could be funding, permitting, or many other types of federal involvement. The SBA argued that providing the guaranty of C & H facility did not constitute a NEPA federal “action.” Judge Marshall rejected this argument citing the federal agency’s own regulations.

The FSA and SBA’s loan guarantees resulted in question “1” being answered in the affirmative (i.e., NEPA federal “action”). The agencies were, therefore required to undertake some level of NEPA review.
An affirmative answer to question “2” would require the preparation of an EIS. Nevertheless, whether or not an EIS should have been prepared was not an issue in the lawsuit. Instead, the question was whether the agencies adequately and/or correctly assessed and publicized potential environmental impacts. Judge Marshall’s decision identified deficiencies issues such as:

Failure of the FSA EA to reference:
Buffalo River
Big Creek
Mt. Judea School
Absence of rationale for conclusion that ADEQ mitigation measures would address impact
Failure to publish guaranty notice in local paper
Failure to conduct environmental review.

NEPA is a procedural law. It does not dictate a certain substantive result. A project regardless of the merits can proceed as long as the various NEPA procedural requirements are fulfilled. The potential impacts must simply be identified. However, the determination of procedural deficiencies in regard to the loan guarantees was a NEPA violation prompting the Court to issue an injunction.

Endangered Species Act

The ESA forms the basis for federal protection of listed threatened or endangered plants and wildlife. The federal statute has provisions that can impose obligations on federal and/or private activities that involve species that have been identified by the federal government as endangered or threatened.

Section 7 of the statute applies solely to federal agencies. It requires that the federal agencies consult with the United States Fish and Wildlife Service (“Service”) to ensure that any actions authorized or funded or carried out by the agency are not likely to “jeopardize the continued existence of any endangered or threatened species or result in the destruction or adverse modification of lands determined by the Service to be critical habitat.” A Section 9 prohibition against the “taking” (a broadly defined term) of listed endangered species applies to both private and federal activities.

Of course, various types of federal activities (such as funding, permitting, etc.) are potentially relevant to private sector projects. In other words, either Section 7 or 9 can potentially constitute a federal nexus to a private project in the appropriate circumstances.

The Order notes that the FSA had written the Service asking about any potential effect of the C & H facility on endangered species in the area. The Service responded that the Gray Bat lived in caves and forages around the C & H facility. Further, the Service suggested some potential mitigation steps in highlighted areas for further investigation. The Service cautioned that the response was informational and not a “blessing.”

The Order concludes that the FSA and SBA were required by the ESA to ensure that their actions would not hurt the Gray Bat. The Gray Bat was stated to forage along the river’s tributaries (including Big Creek). The Gray Bat was also stated to be found in caves along the Buffalo River (including at least one near C & H) potentially triggering the potential applicability of the ESA.

Both the FSA and SBA argued that their guaranties were not actions within the reach of the ESA. Judge Marshall concluded in regards to this issue:
This argument again understates the role of the guaranties. They were essential for C & H’s financing. And C & H had to finance $3.6 million to start the farm. The federal Agencies knew that C & H would bring several thousand swine into the Buffalo River watershed. In the circumstances, the Agencies were required by law to ensure that C & H didn’t jeopardize any endangered species. The Small Business Administration made no attempt to comply with the Act. The Farm Service Agency began consulting informally with the Fish and Wildlife Service, but then abandoned any collaboration. The Endangered Species Act required more consultation by both the Small Business Administration and the Farm Service Agency. 50 C.F.R. §§ 402.13 & 402.14. And their insufficient consultation violated the law. …

The Order’s conclusion is not that the Gray Bat would necessarily be adversely affected by the C & H facility. Instead, the Court was not satisfied that this potential issue was adequately resolved and/or documented by the federal agencies.

Lessons?

Any private project or activity that potentially has a federal nexus should be diligent in determining whether NEPA or the ESA potentially applies. If so, ensuring the appropriate level of effort to meet the procedural requirements will be prudent. Suggestions might include:

1) A federal agency may be responsible for NEPA/ESA procedural compliance. Nevertheless, the private sector project proponent should ensure that the procedural requirements (including required public notices) are adequately addressed. Some federal agencies are more diligent at addressing such issues than others.

2) NEPA/ESA issues should be addressed as early as possible. They should not be perceived as an afterthought. A substantive project decision that predates a required NEPA review may be viewed as suspect.

3) Documentation matters. Vague, incomplete or speculative analysis provides opportunities for opponents to argue there are procedural gaps. If so, a court will enjoin the activity until addressed.

4) Determine in advance whether ESA endangered or threatened species may be potentially impacted by the proposed activity. Particularly important will be whether or not designated critical habitat may be affected. Ensure relevant procedural matters are addressed and conclusions