Central Valley Project Water Supply Contracts Withstand ESA Challenge in Ninth Circuit

On July 17, 2012, the Ninth Circuit, in a 2:1 opinion, affirmed Judge Oliver Wanger’s ruling that the United States Bureau of Reclamation (“Bureau”) did not violate the federal Endangered Species Act (“ESA”) when it renewed 41 water supply contracts in 2005 as part of its operation of the Central Valley Project (“CVP”) in California’s Sacramento-San Joaquin River Delta (“Delta”).

                          

The Ninth Circuit’s decision is the latest chapter in the clash between water supply, water rights and the ESA in the embattled Delta.  Plaintiffs in this case, Natural Resources Defense Council and other environmental groups, alleged that the Bureau failed to comply with Section 7(a)(2) of the ESA, which requires federal agencies to consult with U.S. Fish and Wildlife Service (“Service”) if their actions may affect a listed species or critical habitat, when it renewed the 41 water supply contracts in reliance on inadequate ESA review.  Two sets of water supply contracts were at issue—the “DMC Contracts” and the “Settlement Contracts.”  

First, with respect to the DMC Contracts, the court concluded that plaintiffs could not proceed to the merits of their case because they failed to meet threshold Article III standing requirements.  Specifically, plaintiffs failed to establish the requisite causal connection between the threatened injury—harm to the threatened delta smelt—and the Bureau’s renewal of the DMC Contracts because those contracts contained a “shortage provision” that allowed the Bureau to take actions necessary to comply with the ESA, including restricting water deliveries for the benefit of the delta smelt.

Second, with respect to the “Settlement Contracts,” the court found that although plaintiffs had established requisite Article III standing, their claims nonetheless failed because the Bureau’s renewal of the Settlement Contracts was not a discretionary action subject to the ESA’s Section 7(a)(2) consultation requirements.  The court held that the Bureau’s “hands were tied” insofar as its inability to impose any measures that would restrict water deliveries to these contractors due to requirements imposed by the Reclamation Act, the Central Valley Project Improvement Act, the California Water Resource’s Control Board Decision granting the Bureau rights to operate the CVP, the terms of the Settlement Contracts themselves which resolved senior water rights claims in conjunction with the state’s grant of water rights to the Bureau, and California law governing water rights.  Thus, based on the Supreme Court’s decision in National Association of Home Builders v. Defenders of Wildlife, which held that Section 7(a)(2) of the ESA only applies to discretionary acts by Federal agencies, the Bureau was not required to consult with Service when it renewed the Settlement Contracts.   

Dissenting Judge Richard A. Paez disagreed on both counts, concluding that plaintiffs had established the requisite standing to challenge the DMC contracts because the record supported a finding that ESA compliance by the Bureau could potentially advance plaintiffs’ concrete interest in protecting the delta smelt and its habitat through various measures including providing less water to the contractors and altering the timing of the water deliveries to the benefit of the delta smelt—a showing sufficient to establish standing for the alleged procedural injury.  With respect to the Settlement Contracts, Judge Paez concluded that the Bureau was obligated to consult with the Service pursuant to Section 7(a)(2) of the ESA because it maintained discretion not only in its decision of whether to renew the Settlement Contracts but also in its renegotiation of contract terms, also potentially to the benefit of the delta smelt.   

--Nicole Martin